notes about Public Finance Essay

5. Incentives matter. Explain why businesses and entrepreneurs are more likely to voluntarily undertake the projects that consumers value highly relative to price and less likely to undertake the government-sponsored projects in which the per-unit cost of production is above the price consumers willingly

Refer to the above table. How much money was saved (between the two firms) to reduce emissions by 1 ton each by allowing for tradable pollution permits?:

2. Total revenue falls as the price of a good is raised, if the demand for the good is ( )

23. A firm participating in a competitive market with costs described in the table below would always shut down:

What happen with firm’s price and revenue operating in competitive market if the firm doubles the amount of output it sells?

In these circumstances, the cost structures are not the same as with the competitive industry and so we cannot say that the oligopolistic firm results in higher prices than if a competitive market structure were to be adopted. In fact going along the theory of the downward sloping cost curve we can come to the conclusion that it would be the other way around and consumers would

The firm initially produces where MR=MC charging price P1 and quantity Qa. At this price the firm has a large amount of

v. Whether its price is above or below the average price of all companies competing in that geographic region

1B. In the real world, a perfectly competitive market rarely exists. One or more assumptions are violated in most markets and this is certainly the case in the pharmaceutical market.

The car firm does not care about the pollution. The owner is simply interested in maximizing profits. The equilibrium price for him is where demand equals his supply curve, at point B, so output will be Q1 with price at P1. Given that there is pollution, though, the optimal point for the whole of society is at C, where output is Q2 and price P2. Hence, if left to the free

a. The product is identical (ie, aluminum), all the companies procure the same resources to make production with same production line and process. The firms only differentiate in terms of controlling and lowering the variable cost in order to make a profit as a price-takers. Pricing is somehow fix in global level as aluminum is openly traded in the financial market.

8. Compared to a perfectly competitive industry with the same demand and cost curves, a monopoly’s price and output will be which of the following?

(d) Price war is not beneficial for BPS since firstly it cannot sustain it and secondly it will shrink the market pie to an extent that BPS will not be able to command premium over its products.

Since the capacity is being expanded to increase production of Product C, it could be assumed that this increase should be allocated to this product. Production of Product A is to be scaled down, but its level of

* If the Incumbent opts to fight, it may benefit from the Entrant’s higher unit cost and therefore still capture the entire market though at less profit margin. Since the willingness to pay for the Incumbent is $40 more than that for the Entrant, the former can fix any price at 40 more than whichever price fixed by the Entrant. So for any price fixed by the Entrant (Pe),the Incumbent’s price will be given by,