What is the market solution

Assignment Help Business Economics
Reference no: EM131726

Part 1: True/False questions. Explain your answer fully.

1. The risk treatment in the bene.t-cost analysis assumes risk neutrality. This assumption cannot be justi.ed for large projects.

2. In a market with positive externalities, monopolies can be better than competitive .rms rom the society.s point of view.

3. The supply of a good in a private market is given by Q = -2 + P. However, the production process of this good is damaging the environment. Given the social marginal cost MCS = 3 + 2Q you have found that the socially optimal quantity (i.e., when taking the externality e¤ect into consideration) of that good is Q_ = 5 units. Therefore, a corrective measure against this negative externality is a Pigouvian tax of tP = $1.

4. A property rights system that satis.es exclusivity and enforceability does not guarantee good maintenance of the resources.

Part 2: Analytical questions. Do the problems in the order given.

1. The demand for and supply of crude oil from Alberta.s oil sands are given by P = 120 - 0:5QD and P = 1:5QS + 10. Although these equations express the private marginal bene.ts and private marginal costs, they fail to incorporate the external costs associated with the production process and consumption of oil. These external costs are estimated to be given by MCE = 5 + Q.

(a) What is the market solution (market price and quantity)? What is the total surplus of the society under the market solution?

(b) What is the socially optimal solution (optimal quantity and price)? What is the total surplus of the society under the socially optimal solution?

(c) What is the optimal e­ uence tax that will lead the market on producing the socially optimal quantity?

2. The following equations describe the willingness to pay of Amanda, Brian, and Carol for a non-excludable and indivisible good:

Amanda.s WTP:

PA = 5 - QA

Brian.s WTP:

PB = 8 - 2QB

Carol.s WTP:

PC = 4 - QC

The marginal cost function is

MC = 3 + 3Q

(a) What is the market demand for this public good? What is the socially e¢ cient provision of this public good?

(b) What are the two possible reasons why the market fails to provide the socially e¢ cient quantity of this public good? Fully explain your answer.

3. An oil re.nery is considering three alternative production processes. Although the resulting bene.ts will be the same (the resulting gasoline, diesel fuel, asphalt base, heating oil, kerosene from the three di¤erent methods are of the same quality and quantity), the marginal costs associated with each method are di¤erent. More speci.cally, the marginal cost of method 1 is MC1 = 28, the marginal cost of method 2 is MC2 = 12 + q2, and the marginal cost of method 3 is MC3 = 2q3.

(a) If the factory wants to produce 100 units in total, how many units will be produced using each di¤erent method?

(b) Repeat part (a) when the factory wants to produce 18 units in total. (10 marks)

 

 

Reference no: EM131726

Questions Cloud

Creating the gui for the game interface : A GUI-based application that allows a user to play a simple trivia game
Estimate the ratios of the basic and acidic forms : Estimate the ratios of the basic and acidic forms of the histidine side chain
Stochastic dynamic programming problem : Determine the problem as stochastic dynamic programming problem. Specify phases, states, decisions and the optimal value function.
Expected delay costs : Would adding one teller decrease or increase the expected hourly cost of Dino-Bank
What is the market solution : What is the market solution (market price and quantity) and What is the total surplus of the society under the market solution
Designing a lunchbox menu for children : Marketing Plan- Designing a lunchbox menu for Children
Distributed systems : Build robust, secure distributed systems using advanced programming techniques
What is the corresponding effective annual interest rate : Joshua bought a car for $5,000 and sold it two months later for $5,200. The corresponding effective annual interest rate
Identify principal audit risk : To identify principal audit risk and corresponding audit procedures

Reviews

Write a Review

 

Business Economics Questions & Answers

  Supply and demand diagrams

Explain each of the following using supply and demand diagrams,  With the use of a graph, explain how these two programs affect cigarette consumption and the price of cigarettes.

  Draw the production possibility curve

Draw the production possibility curve and a. Define consumer surplus and producer surplus.

  Case study: fisher-price toys

The case study of the Fisher-Price Toys, Inc., a popular case in basic economics and management from the prestigious Harvard Business School.

  Maximize total welfare

How many tickets to sell to maximize total welfare.

  Tax revenue

The Australian government administers two programs that affect the market for cigarettes

  Depict von neumann-morgenstern utility index u in a diagram

Depict the von Neumann-Morgenstern utility index u in a diagram

  Long-run perfectly competitive equilibrium for the firm

Evaluate Government intervene and correct this situation?(a) Explain the concept of a concentration ratio. A rise in the price of magarine Explain the impact of external costs and external benefits on resource allocation long-run perfectly c..

  Demand and supply curves

Economics is the study of the principles governing the allocation of scarce means among competing ends when the objective of the allocation is to maximize the attainment of the ends.

  Difference between the cv and the ev

The change in consumer surplus (?CS) is not "theoretically" justifiable like the CV and EV but it continues to be the most widely used measure of consumer welfare change. Explain how this can be reconciled

  Economics assignment

This document contains various important questions and their appropriate answers in the subject field of Economics.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd