Suppose Jason owns a small pastry shop. Jason wants to maximize his profit, and thinking back to the microeconomics class he took in college, he decides he needs to produce a quantity of pastries which will minimize his average total cost. Will Jason's
strategy necessarily maximize profits for his pastry shop?
A) Yes; Since Jason's pastry shop is in a perfectly competitive market, the only way to maximize profit is to produce the quantity where average total cost is minimized.
B) Not necessarily; This strategy will only maximize Jason's profit in the long run, but not in the short run.
C) No; In order to maximize profit, Jason would never want to produce the quantity where average total cost is minimized.
D) Not necessarily; Depending on demand, Jason may maximize profit by producing a quantity other than that where average total cost is at a minimum.
Answer: D
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Is it possible for inflation and recession to occur simultaneously in an economy?
A) No, because prices cannot rise during a recession. B) No, because recession is caused by too little demand and inflation by too much demand. C) Yes, and this has happened several times in the U.S. economy since World War II. D) Yes, but it has not occurred since the Great Depression in the 1930s. E) Yes, but while it is logically possible it has never actually happened in any major industrialized economy.
A firm has a marginal cost of $18 and charges a price of $27. The Lerner index for this firm is:
A. 0.67. B. 0.50. C. 0.75. D. 0.33.