Suppose the equilibrium price in a perfectly competitive industry is $10 and a firm in the industry charges $12. Which of the following will happen?

A central concept of New Keynesian macroeconomics is that in setting prices and wages, self-interested firms and workers are acting

A) irrationally, since their self-interest is badly damaged by the ensuing business cycles. B) irrationally, since this imposes business cycles on everyone not part of their arrangements. C) rationally, since they do not bear a fully offsetting cost of business cycles. D) rationally, since the total welfare loss of business cycles must be small enough to justify the price and wage setting.

For products like parking lots and hotels, costs of building capacity are mostly fixed or sunk and firms in this industry typically face capacity constraints. Therefore,

a. If SRMR>SRMC at capacity, then the firms should price to fill capacity b. If SRMRLRMC at capacity, then the firms should price to fill capacity d. If LRMR>LRMC at capacity, then the firms should price to fill capacity