Suppose early Friday morning the economics club buys 200 donuts at 25 cents each, and plans to sell all of them later in the day on campus for 50 cents each.
Only 60 donuts are sold at 50 cents, however, and by early afternoon the club is seen trying to unload the remaining donuts for 10 cents each. What can we conclude? A) The club was clearly engaging in predatory pricing of donuts.
B) The club was clearly selling below cost.
C) The club clearly misjudged the demand for donuts.
D) All of the above are true.
Question 2
Under fair-returns price regulation:
A) deadweight loss is likely to be maximized.
B) deadweight loss is likely to be minimized.
C) firms are less likely to innovate because they earn zero profits.
D) firms are more likely to innovate because they earn positive profits.
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