While smoking is on the decline in the United States, China is still puffing away madly. That's not because the government is eager to protect its citizens from the hazards of smoking. It's because China is eager to protect its own tobacco industry which is a state monopoly. How would entry of foreign companies into the tobacco market affect the economic profit of the state monopoly?
A) Its economic profits would increase because of rent seeking activity.
B) Its economic profits would decrease because of increased competition.
C) Its economic profits would increase because of increased competition.
D) Its economic profits would decrease because of rent seeking activity.
Answer is B) Its economic profits would decrease because of increased competition.
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If Sweden exports cell phones to Denmark and Denmark exports butter to Sweden, which of the following would explain this pattern of trade?
A) The opportunity cost of producing butter in Denmark is higher than the opportunity cost of producing butter in Sweden. B) Sweden has a higher opportunity cost of producing cell phones than Denmark, and Denmark has a higher opportunity cost of producing butter. C) Sweden has a lower opportunity cost of producing cell phones than Denmark and Denmark has a comparative advantage in producing butter. D) Sweden must have an absolute advantage in producing cell phones and Denmark must have an absolute advantage in producing butter.
If a firm is experiencing diminishing returns to a variable input, then:
a. it must be hiring less-productive units of the variable resource. b. it must be experiencing diseconomies of scale. c. the marginal physical product of the variable input must be decreasing. d. the average physical product of the variable input must be decreasing. e. its total product must be decreasing.