Use Figure 13.2 which depicts a monopolist firm to help with the following question. Why would this firm not find it profitable to produce more than Qm or less than Qm?
What will be an ideal response?
A profit-maximizing monopolist will raise output as long as marginal revenue exceeds marginal cost. Maximum profit is at an output of Qm units per period and a price of Pm. Above Qm units of output, marginal cost is greater than marginal revenue and below Qm yields marginal revenue that is greater than marginal cost.
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If a firm had a fixed proportions technology, then the pollution produced by this firm
A) cannot be reduced. B) can be reduced only by lowering the level of output (holding technology constant). C) can be reduced by changing how the output is produced within the bounds of the existing technology. D) can be reduced only by increasing the number of firms in the industry. E) can be reduced only by changing the technology.
Imagine a central banker who takes office believing that, ultimately, the best way to stimulate an economy is to keep people guessing. This means the policy maker will often, but not always, announce one change but then actually do something else. What do you think of the central bank's chances for achieving its objectives and why?
What will be an ideal response?