Refer to Figure 11-10. Suppose for the past 8 years the firm has been producing Qd units per period using plant size ATC4. Now, following a permanent change in demand, it plans to cut production to Qc units
What will happen to its average cost of production?
A) In the short run, its average cost rises from $47 to $55, and in the long run, average cost falls to $41.
B) In the short run, its average cost rises from $47 to $55, and in the long run, average cost falls to $37.
C) In the short run, its average cost falls from $47 to $37, and in the long run, average cost rises to $41.
D) In the short run, its average cost falls from $47 to $41, and in the long run, average cost falls even further to $37.
A
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Demand for a product tends to be more elastic the longer the time period considered because
A) sellers have more time to expand production. B) buyers have more time to search for substitutes. C) price increases over time make the price larger relative to buyers' incomes. D) the inverse relationship between the price and the quantity demanded weakens over time. E) buyers get used to the new price.
Gordon argues that individual workers and firms prefer long-term contracts, but that such contracts
A) raise the costs of doing business, a macroeconomic externality. B) insure that output alone is adjusted as AD changes and therefore, such contracts impose high costs of output and employment instability on society. C) insure that the price level alone is adjusted as AD changes and therefore, such contracts impose high costs of output and employment instability on society. D) insure a macroeconomic externality, rigid unemployment.