PART I

Directions: Please answer each of the following questions in a paragraph for each. Explain your thoughts with theory and examples where applicable.

 

 

1. What are opportunity costs? How do explicit and implicit costs relate to opportunity costs?

 

2. If the average total cost curve is falling, what is necessarily true of the marginal cost curve? If the average total cost curve is rising, what is necessarily true of the marginal cost curve?

 

3. List and describe the characteristics of a perfectly competitive market.

 

4. Why would a firm in a perfectly competitive market always choose to set its price equal to the current market price? If a firm sets its price below the current market price, what effect would this have on the market?

 

5. Explain how a firm in a competitive market identifies the profit-maximizing level of production. When should the firm raise production, and when should the firm lower production?

 

6. If identical firms that remain in a competitive market over the long run make zero economic profit, why do these firms choose to remain in the market?

 

　

 

 

 

 

PART II

Please click HERE and read through the article on the Fed’s website on credit liquidity and balance sheets.

 

 

 

 

Write a two page paper identifying:

 

 

the position of the federal open market committee.

the primary points articulated in the paper.

whether you believe Krugman would agree or disagree with the positions noted in the paper.

 

Please review this module’s required videos for more information on Krugman’s position.

 

 

 

　

 

 

PART III: Reflection Essay

As you read about numerous topics this week including balance sheets and the Fed’s policy, reflect on the past two years of your life in terms of microeconomics. Is there information on the Web site you would have found useful in personal decision making? If not, what would you have found useful? Write a one page reflection essay on this topic and cite at least one source.