Suppose we have two pairs of substitute goods. The first are very close substitutes, such as Coke and Pepsi, while the others are less close, such as Coke and iced tea. We would expect the cross elasticity of the closer pair to be
a. positive while the less close pair to be negative
b. negative while the less close pair to be positive
c. one while the less close pair to be zero
d. the smaller of the two
e. the larger of the two
E
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The AS/AD model with sticky prices predicts that, in the long run, a reduction of the money supply results in:
a. lower prices and lower output. b. no change in prices and lower output. c. lower prices and no change in output. d. no change in prices or output.
The market structure of home video gaming systems is best characterized by monopolistic competition. Quasar Entertainment is one of the producers in this market. The inverse demand for Quasar systems is:
P = 500 - 9.75Q Quasar's cost function is: C(Q) = 0.25Q2 + 6. Determine Quasar's profit maximizing level of output and the price charged to customers. Is the market in a long-run equilibrium?