Suppose That Sandy Owns a Farm in North Carolina and Patowns

question 23

Multiple Choice

Suppose that Sandy owns a farm in North Carolina and Patowns a farm in Iowa, and Sandy's farm is generally moreproductive than Pat's. If both Sandy and Pat sell their corn inthe same market, Sandy should produce the output at themarginal cost that is:

• A)less than the marginal cost of Pat's production.
• B)equal to the marginal cost of Pat's production.(True Answer )Correct
• C)greater than the marginal cost of Pat's production.
• D)equal to total revenue in the market.

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Definitions:

Equilibrium Output

The level of output where the aggregate supply equals aggregate demand, meaning there is no tendency for the economy to change size.

Short-Run Aggregate Supply

Shows the relationship between the price level and the quantity of goods and services that firms are willing and able to supply in the short term, holding some inputs fixed.

Long-Run Equilibrium

The price level and real GDP that occurs when (1) the actual price level equals the expected price level, (2) real GDP supplied equals potential output, and (3) real GDP supplied equals real GDP demanded.

Aggregate Demand Curve

Represents the total quantity of all goods and services that households, businesses, and government are willing to buy at each price level in an economy.