A Profit-Maximizing Dairy Farm Is Currently Producing 10,000 Gallons of Milk

question 10

Multiple Choice

A profit-maximizing dairy farm is currently producing 10,000 gallons of milk per day.The government is considering two alternative policies.One is to give the farm a lump sum subsidy of $500 per month.The other policy is to give the farm a subsidy of $.05 per gallon of output.

• A)Both kinds of subsidy will increase production at this farm.
• B)Neither subsidy will affect production at this farm, since output is determined by profit maximization.
• C)Production at this farm will be increased if the per-unit subsidy is adopted but not if the lump sum subsidy is adopted.
• D)Which subsidy has the greater effect on production at this farm depends on whether fixed costs are greater than variable costs.
• E)Production will be increased by either kind of subsidy if and only if there are not decreasing returns to scale.

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Definitions:

Agreeableness

A personality trait characterized by compassion, cooperativeness, and a desire to maintain positive social relations.

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A personality trait characterized by organization, dependability, efficiency, and a strong sense of duty.

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An enduring pattern of emotional, romantic, or sexual attractions to men, women, or both sexes.

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