MICROECONOMICS--LOOSELEAF
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ISBN: 9781264022588
Author: McConnell
Publisher: MCG
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Chapter 19, Problem 11DQ
To determine
Property rights and their relevance.
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Complete the accompanying table and answer the accompanying questions. (L01, LO6, LO7)
a. At what level of the control variable are net benefits maximized?
b. What is the relation between marginal benefit and marginal cost at this levelof the variable?
Control Variable Q
Total Benefits B(Q)
Total Cost C(Q)
Net Benefits N(Q)
Marginal Benefit MB(Q)
Marginal Cost MC(Q)
Marginal Cost MC(Q)
100
1200
950
60
101
1400
70
102
1590
80
103
1770
90
104
1940
100
105
2100
110
106
2250
120
107
2390
130
108
2520
140
109
2640
150
110
2750
160
Statement 1: Privatization provides new private owners with a strong incentive to explore new markets while exiting failing ones.
Statement 2: Privatization is the process of transferring state property ownership to private persons, usually through the sale of public assets at auction
Statement 3: Privatization is viewed as a means of boosting economic efficiency.
Statement 4: Privatization provides new private owners with significant incentives such as higher profit margins and the ability to enhance efficiency
Which of the following is false?
© Both statements 1 and 2 are true
O Both statements 3 and 4 are true
O Options a and b are true
O Options a, b, and c are all true (page 81)
O None of the above are true
Newfoundland’s fishing industry has recently declined sharply due to overfish- ing, even though fishing companies were supposedly bound by a quota agree- ment. If all fishermen had abided by the agreement, yields could have been maintained at high levels. LO4
Model this situation as a prisoner’s dilemma in which the players are Company A and Company B and the strategies are to keep the quota and break the quota. Include appropriate payoffs in the matrix. Explain why overfishing is inevitable in the absence of effective enforcement of the quota agreement.
Provide another environmental example of a prisoner’s dilemma.
In many potential prisoner’s dilemmas, a way out of the dilemma for a would-be cooperator is to make reliable character judgments about the trustworthiness of potential partners. Explain why this solution is not avail-
able in many situations involving degradation of the environment.
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- 19.3 Suppose the oil industry in Utopia is perfectly competitive and that all firms draw oil from a single (and practically inex- haustible) pool. Assume that each competitor believes that it can sell all the oil it can produce at a stable world price of $10 per barrel and that the cost of operating a well for 1 year is $1,000. Total output per year (Q) of the oil field is a function of the number of wells (n) operating in the field. In particular, Q = 500n - n^2,and the amount of oil produced by each well (q) is given by q= Q/n= 500-n Describe the equilibrium output and the equilibrium number of wells in this perfectly competitive case. Is there a divergence between private and social marginal cost in the industry? Suppose now that the government nationalizes the oil field. How many oil wells should it operate? What will total output be? What will the output per well be? As an alternative to nationalization, the Utopian govern- ment is considering an annual license fee per well…arrow_forward1 Given the following bids to buy and to sell a used book. Bids to buy: $16. $16 . $18 . $18 . $18 . $20 . $22 $22 . $23 . $24 Bids to sell $18 . $18 . $18 . $22 . $23 . $23 . $23 . $23 . $24 $24 Which argument makes the most sense and why? A) set price equal to $22 to maximize sales B) set price at $16, so that more people will buy the product C) set price at $24 so that more people will sell the product D) set price at $18 because three people will buy and 3 people will sell And describe a real life example for what happens to quantity demanded of your product if A) the price of a complement rises B) the price of a substitute risesarrow_forwardWith current technology, suppose a firm is producing 400 loaves of banana bread daily. Also, assume that the least-cost combination of resources in producing those loaves is 5 units of labor, 7 units of land, 2 units of capital, and 1 unit of entrepreneurial ability, selling at prices of $40, $60, $60, and $20, respectively. If the firm can sell these 400 loaves at $2 per unit, will it continue to produce banana bread? If this firm’s situation is typical for the other makers of banana bread, will resources flow to or away from this bakery good?arrow_forward
- 14 Assume that a country is endowed with 25 units of oil reserve. (a) the marginal willingness to pay for oil in each period is given by P = 13 – 0.53q (b) the marginal cost of extraction of oil is constant at $3 per unit (c) the discount rate is 2% (d) the marginal cost of renewable energy is $9, where c<d<a. How long will it take, for a country to transition to a renewable energy source?arrow_forwardTeletronics reported record profits of $100,000 last year and is on track to exceed those profits this year. Teletronics competes in a very competitive market where many of the firms are merging in an attempt to gain competitive advantages. Currently, the company’s top manager is compensated with a fixed salary that does not include any performance bonuses. Explain why this manager might nonetheless have a strong incentive to maximize the firm’s profits. (LO4, LO5)arrow_forwardSuppose the marginal benefit of writing a contract is $100, independent of its length. Find the optimal contract length when the marginal cost of writing a contract of length L is: (LO3) a. MC(L) = 30 + 4L. b. MC(L) = 40 + 5L. c. What happens to the optimal contract length when the marginal cost of writing a contract declines?arrow_forward
- Assume the cost of producing the goods is zero and each consumer will purchase each good as long as the price is less than or equal to value. Consumer values are the entries in the table. Good X Consumer A Consumer B $3,300 $2,900 Good Y $2,500 $3,400 What is the company's total profit from selling the goods bundled together? OA. $12,600 OB. $10,800 O C. $11.600 OD. $13,400arrow_forwardAbdul’s utility function is given by U A 5 M A 2 y M B , where M A is Abdul’s wealth level and M B is Benjamin’s wealth level. Benjamin’s utility function is given by (LO1) U B 5 M B 2 y M A . Suppose M A 5 M B 5 10 initially, and suppose there is a joint project that Ab dul and Benjamin can undertake that will generate an additional 10 units of wealth to divide between them. The project is neither pleasant nor unpleasant. What is the minimum payment Abdul must be given to secure his agreement to perform the project? What is the minimum payment Benjamin must be given? Will they perform the project? (LO1)arrow_forward6. Assume that a country is endowed with 2 units of oil reserve. There is no oil substitute available. How long the oil reserve will last if (a) the marginal willingness to pay for oil in each period is given by P = 11 - 0.71q, (b) the marginal cost of extraction of oil is constant at $4 per unit, and (c) discount rate is 2%?arrow_forward
- 16-5. Your pharmaceutical firm is seeking to open up new international markets by partnering with various distributors. The different distribution within a country are stronger with different market segments (hospitals, retail pharmacies, etc.) but also have substantial overlap. A. In Egypt, you calculate that the annual value created by one distributor is $60 millions per year, but would be $80 millions if two distributors carried your product line. How much of the value can you expect to capture? B. Argentina also has two distributors with values similar to those in Egypt, but both are run by the government. How does this affect the amount you could capture? C. In Argentina a, if you do not reach an agreement with the government distributors, you can set up a less efficient Internet-based distribution system that would generate $20 million in value to you. How does tis affect the amount you could capture?arrow_forwardVarious cultures have come up with their own methods to limit catch size and prevent fishery collapse. In old Hawaii, certain fishing grounds near shore could be used only by certain individuals. And among lobstermen in Maine, strict territorial rights are handed out so that only certain people can harvest lobsters in certain waters. Discuss specifically how these systems provide incentives for conservation. Then think about the enforcement of these property rights. Do you think similar systems could be successfully enforced for deep-sea fishing, far off shore?arrow_forward2. You are preparing to market this year's calf crop and want to decide if you would like to precondition your calves this year. If you decided to sell your calves at weaning, you would expect to market them at approximately 425 at price of $1.80 per pound. Alternatively, you have the option to precondition your calves for 45 days in a dry lot, castrate your bulls, and provide a round of vaccinations. You expect that the additional 45 days of feeding will get your calves up to a market weight of 550 pounds. Under normal circumstances, these calves would bring $1.65 per pound at the sale barn, but you also expect that you can charge a 6% preconditioning premium at the time of sale because you are marketing them directly. a. What is the final sale price for the 550 pound preconditioned calves? b. What is the value of gain for the preconditioned calves? c. If your cost of gain over the 45-day preconditioning period is $1.45 what would be your net profit on these calves?arrow_forward
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