In the New Keynesian View a Monopolistically Competitive Firm May

question 13

Multiple Choice

In the new Keynesian view a monopolistically competitive firm may fail to increase the price of its product as demand increases because

• A)if it does so it will lose all of its customers.
• B)the cost to it of changing prices may exceed the benefit of doing so.
• C)prices of monopolistically competitive firms are regulated by the federal government and may only be changed with permission.
• D)for a monopolistically competitive firm, price is below marginal cost.

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Definitions:

Security Market Line

A graphical representation used in the Capital Asset Pricing Model to show the relationship between expected return and beta (risk) of an investment.

Required Rates of Return

The lowest yearly return percentage on an investment required to attract individuals or businesses to invest in a specific security or project.

Time Value of Money

The understanding that money present right now has a higher worth compared to the same sum obtained at a later date, as it has the ability to accrue more earnings.

Market Risk

The risk of losses in investments caused by factors that affect the overall performance of the financial markets.