Explain why selling output at a price below that at which marginal revenue equals marginal cost (MR = MC) might serve to deter entry of a potential competitor
What will be an ideal response?
If a potential entrant is unsure about the existing firm's marginal cost it might believe that the firm is maximizing profits at its chosen price and quantity combination and will conclude that profits are low in this industry. As a result, the potential entrant might believe it cannot compete with the existing firm. Alternatively, the potential entrant might view the low profits as inadequate incentive to enter the industry.
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A tax imposed by a state or local government on retail sales of most products is
A) an excise tax. B) a sales tax. C) a consumption tax. D) a social service tax.
The set of fiscal policies that would be most contractionary would be a(n):
A. Increase in government spending and taxes B. Decrease in government spending and taxes C. Increase in government spending and a decrease in taxes D. Decrease in government spending and an increase in taxes