Why is the price of a scarce exhaustible resource in a competitive market above the marginal cost of providing a unit of the resource?
What will be an ideal response?
Because the resource is scarce, the owner receives a rent. The addition of the rent increases the price above the marginal cost of providing the resource.
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What is the difference between the long-run aggregate supply and the short-run aggregate supply curves?
What will be an ideal response?
When demand for a firm's product decreases, the firm can take a number of steps to adjust costs and quantities supplied to the market. Some are listed below. Which actions are short run and which are long run? Explain your reasoning
a. Layoff 25 percent of the firm's existing employees. b. Declare bankruptcy and sell all of the firm's plant and equipment. c. Require management personnel to take a significant cut in pay. d. Furlough employees for 3 days each month. e. Move to a smaller production facility.