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Introduction: It is observed that under perfect competition, an economy's scarce resources are optimally allocated and social welfare is maximized. This situation of perfect competition can prevail only if all the costs of production are accounted for in the price of the product. However, certain production costs are not included in the price of the product. This gives rise to externalities that result in market failure.
Task: Explain the reasons for under-allocation of the economy's scarce resources in case of benefit externalities, and their over-allocation in the case of cost externalities. Do you think that government intervention is necessary to eliminate the effects of externalities?
Arrange your answer as per the following guidelines:
Describe benefit and cost externalities.
List the reasons for lack of optimal allocation of resources in each case.
Explain the need for government intervention in case of market failure due to externalities.
Explain why government intervention may not be needed in certain cases with the help of the 'Coase Theorem.'
Assume a monopolist faces the following demand curve: P = 180 - 4Q. Marginal cost of production is stable and equal to $20, and there're no fixed costs. What is the monopolist's profit maximizing level of output?
Give a brief summary of economic costs. In the short-run, why might a firm still operate even when there is a loss.
If the price elasticity of demand for gasoline is 0.3, and the current price is $1.20 per gallon, what rise in the price of gasoline (in cents or dollars) will reduce its consumption by 10%? please explain.
In the competitive market at a price of $50 and cost function of C=50+5Q2 find out the maximum profit? Show how the solution was reached.
Find out the equilibrium price and quantity and illustrate with a graph. The government imposes a tax of $5.00. Find the new equilibrium price and quantity. Determine the total tax revenue earned by the government
Assume the price of beans rises from $1.00 a pound to $2.00 a pound, quantity demanded falls from 10 units to 6 units. In this example, the demand for beans is said to be ______
Show the country's production possibility curve.
When a single seller is confronted in a market by many small buyers, monopsony power enables the buyers to obtain lower prices than those that would prevail in a competitive markets.
Using two graphs, show consumer surplus before and after government intervention.
Compute the quantity supplied by each firm at prices of $1, $1.50, and $2. What is the minimum price necessary for each individual firm to supply output?
An industry consists of three firms with sales of $200,000, $500,000, $400,000. Compute the Herfindal-Hirschmann index (HHI)
How does the demand curve faced by a perfectly competitive firm differ from the market demand curve in a perfectly competitive market? Explain.
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