Question

1. Which of the following conditions will result in the firm making a positive economic profit?

   		P = AVC at the profit-maximizing q*
   		P = ATC at the profit-maximizing q*
   		P  ATC at the profit-maximizing q*
   		P  ATC at the profit-maximizing q*
   		ATC  P  AVC at the profit-maximizing q*

1. An example of a direct negative incentive is:

   		providing generous benefits and pay for employees.
   		providing a commission for sales.
   		providing an orientation for new employees.
   		awarding a promotion for hard work.
   		threatening to fire those who do not perform well.

QUESTION 18

1. Should a firm always produce the level of output where marginal cost is lowest?

   		Yes. Any other level of output will have higher marginal cost.
   		Yes. That is the level of output where employees are most efficient.
   		No. Profit is maximized where marginal cost equals average variable cost.
   		No. Profit is maximized where marginal cost equals marginal revenue.
   		Yes. That is the level of output where costs are lowest.

  

19.

1. Which of the following statements is false about a binding price ceiling?

   		A binding price ceiling will always increase surplus for all consumers.
   		A binding price ceiling leads to a shortage of goods
   		A binding price ceiling will lower the price of a good
   		A binding price ceiling can create deadweight loss

Answer 1

1> P > ATC at the profit-maximizing q*

If the price is higher than ATC at the optimum output, then the firm will experience positive economic profit.

2> threatening to fire those who do not perform well.

A negative incentive is a threat which induces them to not do something, here the employees are threatened not to shirk

3> No. Profit is maximized where marginal cost equals marginal revenue.

Profit is not maximized at lowest MC, but at the point where MC=MR and on that point, it is not necessary to have the lowest MC.

4> A binding price ceiling will always increase surplus for all consumers

A binding price ceiling decreases the total output, so it leads to a fall in the consumer surplus.