Consider Two Firms, a and B, That Are Producing the Same

question 63

Multiple Choice

Consider two firms, A and B, that are producing the same product but with different marginal costs. In this case,

• A) neither firm is producing its output at the lowest attainable cost.
• B) each firm is being wasteful.
• C) a reallocation of output between the firms can lower the industry's total cost.
• D) one firm is not maximizing profits.
• E) some resources must be unemployed.

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Definitions:

Short-Run Aggregate Demand

The total amount of goods and services that will be purchased at all possible price levels in an economy in a short period.

Aggregate Supply Curve

A graphical representation showing the relationship between the overall price level in an economy and the total output produced by firms.

Long-Run Equilibrium

A state in which supply and demand are balanced over the long term, typically characterized by full employment of resources and stable prices.

Price Level

An index that measures the average prices of goods and services in an economy at a given time.