Firms that face capacity constraints can increase output only up to the capacity, but no further. Therefore, firms
a. Should price to capacity as long as MR > MC
b. Should price to capacity as long as MR = MC
c. Should price to capacity as long as MR < MC
d. Should not take capacity into consideration in pricing decisions
a
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Refer to Negative Externality. Suppose there are no transactions costs. Also suppose the externality is internalized when the damaged parties offer producers a bribe of $5 per unit to reduce their production. Coase's analysis indicates that social gain in this situation will equal
The following questions refer to the accompanying diagram, which shows the effects of a negative externality created by an industry's production. The equilibrium quantity in the absence of any attempt to internalize the externality is QE, and the optimal quantity according to a Pigovian analysis is QO.
a. area A + B + F.
b. area A + B + F - E.
c. area A + B + C + D + F + G + H.
d. area A + B + C + F + G.
Starting from long-run equilibrium, a large tax increase will result in a(n) ________ gap in the short-run and ________ inflation and ________ output in the long-run.
A. recessionary; lower; potential B. expansionary; lower; potential C. expansionary; higher; potential D. recessionary; lower; lower
If Bratty Brad decides to hit Mousey Mike, what would Mousey Mike's best response be
a. Tell b. Not tell c. Run d. Hide
A disadvantage of using public works to reduce unemployment is that
a. it is very difficult to end a government spending program once it develops a political constituency. b. large public works may require years to plan and get underway. c. increased government spending may not be appropriate by the time the public works project beings. d. All of these.