A perfectly competitive industry achieves allocative efficiency in the long run. What does allocative efficiency mean?
A) Each firm produces up to the point where the price of the good equals the marginal cost of producing the last unit.
B) Each firm produces up to the point where all scale economies are exhausted.
C) Production occurs at the lowest average total cost.
D) Firms use an input combination that minimizes cost and maximizes output.
Answer: A
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One way of describing the solution that high net worth provides to the moral hazard problem is to say that it
A) collateralizes the debt contract. B) makes the debt contract incentive compatible. C) state verifies the debt contract. D) removes all of the risk in the debt contract.
If Shawn can produce donuts at a lower opportunity cost than Sue, then
a. Shawn has a comparative advantage in the production of donuts. b. Sue has a comparative advantage in the production of donuts. c. Shawn should not produce donuts. d. Shawn is capable of producing more donuts than Sue in a given amount of time.