Aunt Rose owned a dress shop on 81st Street and Broadway in Manhattan, selling limited-edition dresses to wealthy clients. One day, her landlord tripled her rent. What effect would this have on her dress price in the short run, assuming she is following the rules of profit maximization?
Assuming she continues to operate, the higher rent will not affect dress prices in the short run. Rent is unrelated to the production cost of dresses; that is, it is a fixed cost. Only costs that enter into direct costs influence price. Fixed costs do not alter price or output of dresses in short-run profit maximization.
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Perfect competition and monopolistic competition are similar because under both market structures,
a. there are zero economic profits in the long run. b. production takes place at the least-cost combination. c. there are few firms. d. entry is difficult. e. differentiated products are produced.
How does the imposition of a tariff reduce the price of imports?
a. At the lower quantity supplied, the price to the importer is lower than if there were free trade. b. At the lower quantity demanded, the price to the importer is lower than if there were free trade. c. Supply of the product is increased from domestic production, reducing the price of the imports. d. Demand for the product is decreased, so that price must fall.