Opportunistic behavior may occur when
A) a firm buys its inputs from multiple suppliers.
B) firms incur significant transaction costs when negotiating contracts.
C) a firm backwards vertically integrates.
D) a firm can buy a key component from only one supplier.
D
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Suppose there is a simultaneous increase in the demand for wheat and increase in the supply of wheat. Which of the following will occur as a result of these simultaneous events?
A) Both the market clearing price and equilibrium quantity will rise. B) The market clearing price will fall, but the equilibrium quantity will rise. C) The market clearing price may rise, fall, or stay the same, but the equilibrium quantity will rise. D) The market clearing price will fall, but the equilibrium quantity may rise, fall, or stay the same.
You have been hired by the city to determine whether or not an increase in the price of tickets for the mass transit system would raise system revenues. The debate has been heated and the city council seems to be divided. One side argues that in order
to increase revenues from the transit system, prices must be increased. The opposing side argues that a price increase at this time will lower revenues. What assumptions are each side making about the price elasticity of demand, and how might you determine the best course of action?