PRIN OF MICROECONOMICS
2nd Edition
ISBN: 9780393914085
Author: coppock
Publisher: Norton, W. W. & Company, Inc.
expand_more
expand_more
format_list_bulleted
Question
Chapter 5, Problem 12SP
To determine
Determine why the firms that practice honesty lead to more social welfare than firms that practice dishonesty.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
A few years ago, a professor at the University
of Montana submitted a report to the
Wyoming Woolgrowers Association (WWA)
about the effects of coyote predation on
sheep. He was commissioned to do the report
because, at the time, the WWA was lobbying
to have the federal government increase the
amount of funding for predator control in the
western United States. Much to the chagrin of
the WWA, the report stated that increased
predation by coyotes would actually lead to
an increase in profits for sheep producers.
What are the assumptions that the report
must be using in order to reach its
conclusions? From those assumptions, what is
the economic reasoning behind the
conclusion reached by the report?
Microsoft sells two types of office software, a word processor it calls Word,
and a spreadsheet it calls Excel. Both can be produced at zero marginal
cost. There are two types of consumers for these products, who exist in
roughly equal proportions in the population: authors, who are willing to pay
$120 for Word and $40 for Excel, and economists, who are willing to pay
$50 for Word and $150 for Excel.
a. Suppose that Microsoft execs decide to sell Word and Excel separately.
What price should Microsoft set for Word? What price should Microsoft
set for Excel? What will Microsoft's profit be from a representative group
of one author and one economist?
c. Suppose that Microsoft decides to bundle together Word and Excel in a
package called Office, and not offer them individually. What price should
Microsoft set for the package? Why? How much profit willI Microsoft
generate from a representative group of one author and one economist?
d. Does bundling allow Microsoft to generate higher profit…
Scenario 4
Suppose there are two residents in a neighborhood, Tana and Jason. Tana's demand for clean streets is Q = 100 – 4P. Jason's demand for clean streets is Q = 80 – 2P. If your answer is not a whole number, please make sure to round to the nearest hundredth.
Refer to Scenario 4. Find the social demand curve for clean streets in this neighborhood. What is the slope of the social demand curve? and what is the socially optimal number of clean streets if the marginal cost of cleaning them is $95?
Knowledge Booster
Similar questions
- Power stations emit sulfur dioxide as a waste product. This generates a cost to society that is not paid for by the firm; therefore, pollution is a negative externality of power production. Suppose the government wants to correct this market failure by getting firms to internalize the cost of pollution. To do this, the government can charge firms for pollution rights (the right to emit a given quantity of sulfur dioxide). The following graph shows the daily demand for pollution rights.arrow_forwardCould you help me to compute the social optimum quantity of roses and the DWL in the competitive equilibrium.arrow_forwardIn northern Wisconsin, dairy farmers who grow corn to feed to their dairy cows often spread the cows' manure on the confields as fertilizer. Farmers store the manure in a pit through the winter so they can spread it on the cornfields in the spring. The more manure the farmers store in the fall, the better they'll be able to fertilize the comfields, but this comes at a cost: the more full the manure pit, the greater the risk that snowmelt or large rainstorms will cause manure to run off onto neighboring land, rivers, or lakes. First, suppose the problem was just the risk of manure running off onto the next farm and annoying the neighboring farmer due to the smell. Assume the problem only affects the two farmers, who are friendly with one another. (a) Does the Coase Theorem predict farmers will store more than, less than, or the efficient amount of manure? Why? (b) Are transaction costs likely to be high or low in this setting? Given that, is injunctive relief or a damages rule likely to…arrow_forward
- Scenario 3 Suppose there are one hundred residents in a neighborhood, and each resident has an identical demand for a public good. The demand for each resident is given by P = 2 - .01Q. If your answer is not a whole number, please make sure to round to the nearest hundredth. Refer to Scenario 3. Find the social demand curve for the public good in this neighborhood. What is the y-intercept of the social demand curve?arrow_forwardSuppose that a vaccine is developed for a highly contagious strain of flu. The likelihood that anyone will get this flu decreases as more people receive the vaccine. One of the demand curves below represents the private demand for the vaccine and the other represents the social demand for the vaccine. 110 T 100 90 80 70 Price ($/dose) IN WAS ON 10 0 30 20 60 50 40 0 25 ' S D1 D2 50 75 100 125 150 175 200 225 250 Quantity (doses/day) The total social benefit of 75 doses is:arrow_forwardTable 17-5. Imagine a small town in which only two residents, Kunal and Naj, own wells that produce safe drinking water. Each week Kunal and Naj work together to decide how many gallons of water to pump, to bring the water to town, and to sell it at whatever price the market will bear. Assume Kunal and Naj can pump as much water as they want without cost so that the marginal cost of water equals zero.The weekly town demand schedule and total revenue schedule for water are shown in the table below. WeeklyQuantity(in gallons) Price WeeklyTotal Revenue(and Total Profit) 0 $12 $ 0 25 11 275 50 10 500 75 9 675 100 8 800 125 7 875 150 6 900 175 5 875 200 4 800 225 3 675 250 2 500 275 1 275 300 0 0 Refer to Table 17-5. Since Kunal and Naj operate as a profit-maximizing monopoly in the market for water, what price will they charge for water? Group of answer choices…arrow_forward
- Nuclear facilities emit radioactive waste as a waste product. This generates a cost to society that is not paid for by the firm; therefore, pollution is a negative externality of electricity production. Suppose the U.S. government wants to correct this market failure by getting firms to internalize the cost of pollution. To do this, the government can charge firms for pollution rights (the right to emit a given quantity of radioactive waste). The following graph shows the daily demand for pollution rights.arrow_forwardThe figure below shows the market for higher education. The market demand curve for higher education reflects only the marginal private benefit (MPB) that individuals receive. Since this is a market with positive externalities, suppose the government provides a subsidy to consumers of higher education (students) that is equal to the marginal social benefit (MSB) minus the marginal private benefit (MPB), in this case, $6,000 per student. With the subsidy, the demand curve will shift and become the same as the marginal social benefit (MSB) curve. Move the demand curve below to illustrate this shift. Be sure to take the exact size of the subsidy into account. Precise answers are required.arrow_forwardThe figure below shows the market for higher education. The market demand curve for higher education reflects only the marginal private benefit (MPB) that individuals receive. Since this is a market with positive externalities, suppose the government provides a subsidy to consumers of higher education (students) that is equal to the marginal social benefit (MSB) minus the marginal private benefit (MPB), in this case, $8, 000 per student. With the subsidy, the demand curve will shift and become the same as the marginal social benefit (MSB) curve. Move the demand curve below to illustrate this shift. Be sure to take the exact size of the subsidy into account. Precise answers are required. Provide your answer below: 18 16 14 S(MPC) 10 -8 O Market Equilibrium (800,8) Social Equilibrium (800,8) -6 -4- 2- D(MPB) 16001800 1000 1200 Quantity (in thousands of college degrees) -200 0 200 400 600 800 1400 -2 Price (in thousands of $)arrow_forward
- On Echo Beach there are two ice-cream sellers, A & B. Echo Beach is two miles long running from east to west. Seller A is located half a mile from the east end of the beach whereas seller B is located half a mile from the west end. As it is hot, people are willing to pay up to $5 for an ice cream. There are 1000 people uniformly distributed along the beach. The cost of walking to the ice-cream seller is $0.5 per mile. The marginal cost of an ice cream to A&B is $2. (a) Derive demand curves for firms A & B (b) Write down the profit equations for firms A & B. (c) Derive the reaction functions for firm A & B. (d) State the Nash equilibrium prices for A & B. (e) What market share does firm A have in equilibrium? How many ice-creams does firm A sell?arrow_forwardPower stations emit sulfur dioxide as a waste product. This generates a cost to society that is not paid for by the firm; therefore, pollution is a negative externality of power production. Suppose the U.S. government wants to correct this market failure by getting firms to internalize the cost of pollution. To do this, the government can charge firms for pollution rights (the right to emit a given quantity of sulfur dioxide). The following graph shows the daily demand for pollution rights. 1) Suppose the government has determined that the socially optimal quantity of sulfur dioxide emissions is 350 million tons per day. One way governments can charge firms for pollution rights is by imposing a per-unit tax on emissions. A tax (or price in this case) of $............per ton of sulfur dioxide emitted will achieve the desired level of pollution. 2) Now suppose the U.S. government does not know the demand curve for pollution and, therefore, cannot determine the optimal tax to…arrow_forwardPower stations emit sulfur dioxide as a waste product. This generates a cost to society that is not paid for by the firm; therefore, pollution is a negative externality of power production. Suppose the U.S. government wants to correct this market failure by getting firms to internalize the cost of pollution. To do this, the government can charge firms for pollution rights (the right to emit a given quantity of sulfur dioxide). The following graph shows the daily demand for pollution rights. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. Graph Input Tool Daily Demand for Pollution Rights 81 IPrice (Dollars per ton) Quantity Demanded (Millions of tons) 72 63 315 Demand 35 70 106 140 175 210 245 0 215 190 QUANTITY (Mlons of tons Suppose the government has determined that the…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
