A dentist shares an office building with a radio station. The electrical current from the dentist's drill causes static in the radio broadcast, causing the radio station to lose $10,000 in profits. The radio station could put up a shield at a cost of $30,000 . the dentist could buy a new drill that causes less interference for $6,000 . Either would restore the radio station's lost profits. What
is the economically efficient outcome?
a. The radio station puts up a shield, which it pays for.
b. The radio station puts up a shield, which the dentist pays for.
c. Neither the radio station nor the dentist purchase additional equipment.
d. The dentist gets a new drill; it does not matter who pays for it.
d
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If the Fed wished to decrease inflation, it could
A) increase the reserve requirement or conduct an open market sale. B) increase the reserve requirement or conduct an open market purchase. C) decrease the reserve requirement or conduct an open market sale. D) decrease the reserve requirement or conduct an open market purchase.
A local government can spend $800 today on a project that will yield $968 of benefits two years from today.
(i) If the interest rate is 4%, what is the present value of the project? (ii) For what interest rates would it be beneficial for the government to pursue the project?
Policymaking in a representative democracy
a. is straightforward and does not involve any disagreement. b. benefits from the input of economists, even if their advice is not always followed. c. is conducted without the input of economists. d. is always based exclusively on the results of economic analysis.
Jimmy's utility of wealth schedule is given in the table above. Jimmy has a job with a one-third chance of earning $200 and a two-thirds chance of earnings $400. Jimmy's cost of risk is
A) $0. B) $16.67. C) $33.33. D) Jimmy's cost of risk cannot be determined without more information.