Use the Following to Answer Questions: Figure: Marginal Costs 1

question 14

Multiple Choice

Use the following to answer questions: Figure: Marginal Costs 1
-Figure: Marginal Costs 2 This figure shows the production costs of two firms that produce bird feeders. If these two firms represent total production in the industry, how should they allocate the production of 200 bird feeders to minimize costs?

• A) Firm 2 should produce all 200 bird feeders.
• B) Firm 1 should produce all 200 bird feeders.
• C) Firm 1 should produce 150 bird feeders, and Firm 2 should produce 50 bird feeders.
• D) Firm 1 should produce 100 bird feeders, and Firm 2 should produce 100 bird feeders.

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Definitions:

Prospect Theory

A behavioral economics theory of preferences having three main features: (1) people evaluate options on the basis of whether they generate gains or losses relative to the status quo; (2) gains are subject to diminishing marginal utility, while losses are subject to diminishing marginal disutility; and (3) people are prone to loss aversion.

Behavioral Economists

Economists who study how psychological, social, cognitive, and emotional factors affect economic decisions and market outcomes.

Availability Heuristic

A mental shortcut that relies on immediate examples that come to mind when evaluating a specific topic, concept, method, or decision.