Suppose ventilator manufacturers are profit-maximizing firms with costs outlined in this chapter (large fixed cost and increasing marginal costs). These firms typically operate in a competitive market, though the government is considering the following policies to boost production. For each policy, explain whether production will in fact increase. Via tax subsidies, the government reduces the cost of labor and parts. Does this increase ventilator production? Yes, the subsidy will lower cost and encourage entry into the market causing production to increase. None of the above. No, the subsidy will change how many units consumers demand but does not impact production. No, if the government subsidizes production it incentives firms to save money and cut production.
Suppose ventilator manufacturers are profit-maximizing firms with costs outlined in this chapter (large fixed cost and increasing marginal costs). These firms typically operate in a competitive market, though the government is considering the following policies to boost production. For each policy, explain whether production will in fact increase. Via tax subsidies, the government reduces the cost of labor and parts. Does this increase ventilator production? Yes, the subsidy will lower cost and encourage entry into the market causing production to increase. None of the above. No, the subsidy will change how many units consumers demand but does not impact production. No, if the government subsidizes production it incentives firms to save money and cut production.
Chapter19: Pricing Concepts
Section: Chapter Questions
Problem 5DRQ
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Transcribed Image Text:Suppose ventilator manufacturers are profit-maximizing firms with costs outlined in
this chapter (large fixed cost and increasing marginal costs). These firms typically
operate in a competitive market, though the government is considering the
following policies to boost production. For each policy, explain whether production
will in fact increase.
Via tax subsidies, the government reduces the cost of labor and parts. Does this
increase ventilator production?
Yes, the subsidy will lower cost and encourage entry into the market causing production to
increase.
None of the above.
No, the subsidy will change how many units consumers demand but does not impact
production.
No, if the government subsidizes production it incentives firms to save money and cut
production.
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