When Studying the Short-Run Behaviour of the Economy, an Assumption

question 52

Multiple Choice

When studying the short-run behaviour of the economy, an assumption of _____ is more plausible, whereas when studying the long-run equilibrium behaviour of an economy, an assumption of _____ is more plausible.

• A)inflation; unemployment
• B)unemployment; inflation
• C)flexible prices; sticky prices
• D)sticky prices; flexible prices

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Definitions:

Economic Profits

The financial gain made in a transaction after accounting for both explicit and implicit costs.

Average Total Cost

The total cost of production divided by the quantity of output produced, representing the average cost per unit of output.

MC = MR

Stands for the economic principle where Marginal Cost (MC) equals Marginal Revenue (MR), a condition for profit maximization in firms, indicating the optimal level of production.

Profit-maximizing Level

The point at which a firm achieves the highest possible profit, balancing the cost of production against revenue from sales.