Comment on the following statement: "The output effect and the factor substitution effectwork in opposite directions, so it is possible that a decrease in the wage rate can lead to a decrease in the amount of labor hired."
What will be an ideal response?
The statement is false. The output effect and the factor substitution effect work in the same direction. In either case, a drop in wage will lead to an increase in the amount of labor hired.
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Given the market demand and cost data in the above figure, the existence of a monopoly firm producing 8 million cubic feet of natural gas makes it possible to produce natural gas at a long-run average cost of
A) 10 cents per cubic foot. B) 20 cents per cubic foot. C) 30 cents per cubic foot. D) 40 cents per cubic foot.
The price elasticity of demand between milk and soda is likely to be
a. negative, because the goods are complements b. positive, because the goods are complements c. negative, because the goods are substitutes d. positive, because the goods are substitutes e. 0, because the goods are not usually consumed by the same person at one time