Both a perfectly competitive firm and a monopolist find that:
A. price is less than marginal revenue.
B. it is best to expand production until the benefit and the cost of the last unit produced are equal.
C. they can sell as many units of output as they want at the market price.
D. price and marginal revenue are the same.
Answer: B
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Suppose a large firm allows its employees to choose whether to participate in its health insurance plan
The firm is trying to decide between two plans: Plan I has a low monthly premium but a high deductible, and Plan II has a high monthly premium but a low deductible. Under which plan is adverse selection likely to be a bigger problem? A) Plan II because it is likely to draw participants who expect high medical costs. Healthy individuals who do not expect to consume much health care services will not be willing to pay the high premiums. B) Plan II because it is likely to draw employees who tend to over-consume health care services because of the low deductible. Insurance companies are likely to end up paying out more claims than the premiums they collect. C) Plan I because it is likely to draw the relatively healthy employees who do not expect to spend much on health care. Because the monthly premiums are low, the insurance company has to bear a bigger financial burden in the event of serious illnesses. D) Plan I because it is likely to draw participants who expect high medical costs. This group expects to consume much health care services and therefore prefer low deductibles.
If the supply curve of a product changes so that sellers are now willing to sell 2 additional units at any given price, the supply curve will
A) shift leftward by 2 units. B) shift rightward by 2 units. C) shift vertically up by 2 units. D) shift vertically down by 2 units.