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Questions 1:
The following data apply to a firm operating in perfect competition.
The firm’s profit maximizing output (in units) is most likely:
A 、23.
B 、in excess of 24.
C 、21.
Questions 2:
Which of the following statements with respect to Giffen and Veblen goods isleast accurate?
A 、Giffen goods are “inferior,” whereas Veblen goods are “high-status” goods.
B、 The highly negative income effect overpowers the substitution effect for both types of goods.
C、 Both types of goods demonstrate the possibility of a positively sloping demand curve.
A is correct. Under perfect competition, economic profits are maximized when marginal revenue equals marginal cost—in this case, marginal cost crosses $10 per unit. Profits are maximized at 23 units of production because marginal cost is in excess of marginal revenue at 24 units.
C is incorrect. It represents the minimum total cost point for the given data, not the profit maximizing point.
B is incorrect. At and beyond 24 units, marginal costs exceed marginal revenue.
B is correct. The overwhelming nature of the highly negative income effect over the substitution effect is applicable to Giffen goods only. Veblen goods are highly valued, high-priced “status” goods; consumers may tend to buy more of a Veblen good if its price rises.
A is incorrect. It is true that Giffen goods are “inferior” whereas Veblen goods are “high-status” goods.
C is incorrect. It is true that both Giffen goods and Veblen goods demonstrate the possibility of a positively sloping demand curve
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