Suppose That a Firm's Total Cost of Producing an Output

question 14

Multiple Choice

Suppose that a firm's total cost of producing an output of 400 units a day is currently $2,000.If technology and the price of inputs remain unchanged,what level of output would be produced if total cost rises to $4,000 and increasing returns to scale exist?

• A)5 units.
• B)More than 400 but less than 800 units.
• C)800 units.
• D)More than 800 units.

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Definitions:

Secure Neighborhood

An area with low crime rates and effective safety measures, making it a desirable place to live.

Adverse Selection

Adverse selection is a situation in economics where one party in a transaction has more information than the other, often leading to an imbalance and unfavorable outcomes for one side.

Screening

A solution to the problem of adverse selection that describes the efforts of a less informed party to gather information about the more informed party. A successful screen means that it is unprofitable for bad types to mimic the behavior of good types. Any successful screen can also be used as a signal.

Signaling

A solution to the problem of adverse selection that describes an informed party’s effort to communicate her type, risk, or value to less informed parties by her actions. A successful signal is one that bad types won’t mimic. Any successful signal can also be used as a screen.