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d d b c d a c
8. a. The externalities associated with public goods are positive. Since the benefits from the public good received by one person don't reduce the benefits received by anyone else, the social value of public goods is substantially greater than the private value. Examples include national defense, knowledge. Since public goods aren't excludable, the free-market quantity is zero, so it is less than the efficient quantity. b. The externalities associated with common resources are generally negative. Since common resources are rival but not excludable (so not priced) the use of the common resources by one person reduces the amount available for others. Since common resources are not priced, people tend to overuse them their private cost of using the resources is less than the social cost. Examples include fish in the ocean, the environment, congested non-toll roads, the Town Commons, and congested parks. 9. a. (1) Police protection is a natural monopoly, since it is excludable (the police may ignore some neighborhoods) and not rival (unless the police force is overworked, they're available whenever a crime arises). You could make an argument that police protection is rival, if the police are too busy to respond to all crimes, so that one person's use of the police reduces the amount available for others; in that case, police protection is a private good. (2) Snow plowing is most likely a common resource. Once a street is plowed, it isn't excludable. But it is rival, especially right after a big snowfall, since plowing one street means not plowing another street. (3) Education is a private good (with a positive externality). It is excludable, since someone who doesn't pay can be prevented from taking classes. It is rival, since the presence of an additional student in a class reduces the benefits to others.
a. The statement. 10. They aren't excludable and they aren't rival since they're uncongested. Or if there isn't any room to stand. city streets are public goods. it only takes into account what it will earn. All would tend to reduce the amount of fishing from the free-market amount toward the efficient amount. since congestion means every additional driver slows down the progress of other drivers. b. f. Such restrictions are unnecessary on privately owned lands. 2 . the scope of the problem is reduced. since they're no longer rival. the amount of logging is likely to be efficient. because of the externalities associated with them. So perhaps U. Overfishing is rational for fishermen since they're using a common resource. or auctioning off fishing permits. since each country has a greater incentive to find a solution. the benefits of basic scientific research are available to many people. Since knowledge is a public good. This is a case in which property rights help prevent the overuse of a common resource. Publicly owned land. The United States has tried to give private firms incentives to provide basic research by subsidizing it through organizations like the National Institute of Health and the National Science Foundation. b. b. 11. When the system is congested. When they aren't congested. some people must stand. or taxing logging. since they care that the trees replenish themselves and the forest can be logged in the future. c. since loggers won't worry about the future value of the land. By giving property rights to countries. The private firm doesn't take this into account when choosing how much research to undertake. could be used to reach the appropriate quantity by internalizing the externality. Since public lands tend to be overlogged. the fishermen aren't bearing the full costs of their fishing. Alternatives include regulating the amount of fishing.(4) Rural roads are public goods. unless people in other countries can be prevented somehow from sharing that knowledge. e. since there is no externality. and is likely to be overlogged. the government can improve things by restricting the quantity of logging to its efficient level. They don't bear the costs of reducing the number of fish available to others. a. (5) City streets are common resources when congested. such as education. Loggers have incentives to do the right amount of logging. when all seats are taken. because the sea is so large that it is hard to police. Thus they fish more than they should. taxing fishermen. it isn't excludable at all. On privately owned land. taxing fishing to internalize the externality. If it's basic research that adds to knowledge. so it's rational for them to overfish. 12. auctioning off fishing permits. But they are rival. The free-market quantity of fishing exceeds the efficient amount. they would be sure not to overfish. For example. "Only when fishermen believe they are assured a long-term and exclusive right to a fishery are they likely to manage it in the same far-sighted way as good farmers manage they land. each additional rider imposes costs on other riders. firms get a slight advantage because they hear about technological advances first. Each country can impose a tax or issue permits. and enforcement would be difficult. or taxing fish sold in stores. some people must wait for a train that isn't as crowded. If fishermen owned the fishery. is a common resource.S. but knowledge tends to diffuse rapidly. Since government agencies (like the Coast Guard in the United States) protect fishermen and rescue them when they need help. A solution to the problem could come from regulating the amount of fishing. and monitor a smaller area for compliance. however. because they would bear the costs of overfishing." is sensible. 13. so international cooperation would be necessary. They aren't excludable. c. Selling permits to log. since many nations have access to oceans. But these solutions wouldn't be easy to implement. since anyone can drive on them. The government may provide goods that aren't public goods. Increasing the fare during rush hour internalizes this externality. d.
5 85 17 106 17. Firm C has economies of scale for output from 1 to 3. producers advertise. since one person’s use of it does not affect anyone else. Since the Internet is usually not rival. since most people’s Web sites contain information and exclude no one. and not allowing dangerous products on the market.3 66 16.1 Firm B TC ATC 11 11 24 12 39 13 56 14 75 15 96 16 119 17 Firm C TC ATC 21 21 34 17 49 16. by regulating advertising. To be a public good. thus preventing firms from exaggerating claims about their products. c 3 .7 90 22.14. the Internet is rival. providing people information about the product and its quality. The private market provides information about the quality or function of goods and services in several different ways. private firms provide information to consumers with independent reports on quality.7 129 18. First.3 120 17. 15. the Internet is excludable. total cost (TC). a good must be neither rival nor excludable. it is more like a natural monopoly than a public good. The government plays a role as well. Firm B has diseconomies of scale since average total cost rises as output rises. and average total cost (ATC) for the three firms: Quantity 1 2 3 4 5 6 7 Firm A TC ATC 60 60 70 35 80 26. Answers for CH13 1. Thus the Internet is not strictly a public good.4 Firm A has economies of scale since average total cost declines as output increases.5 100 20 110 18. However. at times traffic on the Internet is so great that everything slows down such times. The following table shows quantity (Q). it is not rival. However. When the Internet isn’t congested. then diseconomies of scale for greater levels of output. an example is the magazine Consumer Reports. Second. 2. Is the Internet excludable? Since anyone at operating a Web site can charge a customer for visiting the site by requiring a password. the majority of the Internet is a public good (when it is not congested). regulating certain goods like gasoline and food to be sure they are measured properly and provided without disease.
marginal cost. Since you would have to pay for room and board whether you went to college or not. total cost.3.000. a 7. f. a 20. a. as her profit would be negative would lose she money. d 21. a 18.000 exceeds revenue of $510. d 8. since your aunt would quit her job as an accountant to run the store. e. b 13. b 15.000 to rent the store and buy the stock and a $50. b 22. your aunt should not open the store. c 9. consisting of $500. a 23. d 24. c 16. fixed cost. d.000 opportunity cost. a 11. The opportunity cost of running the hardware store is $550. 29. a 27. that portion 4 . a. c. a 4. c 12.000. d 25. c 17. average total cost. a 5. Since the total opportunity cost of $550. opportunity cost of something is what must be forgone to acquire it. average variable cost. d 10. variable cost. d 6. b 19. a. d 14. 28. b. opportunity cost. a 26. b.
fixed cost.of your college payment is not an opportunity cost. The production function becomes flatter as the number of hours spent fishing increases. Figure 8 shows the fisherman's total-cost curve. b. The table shows the marginal product. The explicit opportunity cost is the cost of tuition and books. It slopes up because catching additional fish takes additional time. c. and total cost for fishing. Hours Fish Fixed Cost Variable Cost Total Cost Marginal Product 0 0 $10 $0 $10 --1 10 10 5 15 10 2 18 10 10 20 8 3 24 10 15 25 6 4 28 10 20 30 4 5 30 10 25 25 2 c. The wages you give up represent an opportunity cost of attending college. You could work at a job for pay rather than attend college. illustrating diminishing marginal product. a. 30. variable cost. b. The curve is convex because there are diminishing returns to fishing timeeach additional hour spent fishing yields fewer additional fish. An implicit opportunity cost is the cost of your time. Figure below graphs the fisherman's production function. 5 .
average total cost is falling.81 20. when quantity is high. average total cost declines as quantity rises.33 5 140 20 700 5. When marginal cost is greater than average total cost.00 6 150 10 800 5.00 2 50 30 400 8. average total cost is rising.33 3 90 40 500 5. The fixed cost is $300. but rises steeply as output increases. then declines because of diminishing marginal product.00 $5. Here is the table of costs: Marginal Total Average Marginal Product Cost Total Cost Cost 0 0 --$200 ----1 20 20 300 $15. When marginal product is rising. marginal cost is falling. When quantity is low.00 Marginal product rises at first.50 4 120 30 600 5.00 7 155 5 900 5.56 2.31. average total cost rises as quantity rises. Quantity 0 1 2 3 4 5 Total Cost $300 350 390 420 450 490 Variable Cost $0 50 90 120 150 190 Marginal Cost (using total cost) --$50 40 30 30 40 6 Marginal Cost (using variable cost) --$50 40 30 30 40 Workers Output . 32. This is due to diminishing marginal product. Marginal cost is also U-shaped. the cost of the last unit produced pushes the average up.00 3. the cost of the last unit produced pulls the average down.33 10.00 5. Average total cost is U-shaped. and vice versa. When marginal cost is less than average total cost.00 3. since fixed cost equals total cost minus variable cost.
7 120 34.3 91. The following table illustrates average fixed cost (AFC). That is because total cost equals variable cost plus fixed cost and fixed cost does not change as the quantity changes. and marginal cost (MC) for each quantity. and average total cost (ATC) for each quantity. average variable cost (AVC).6 Average Variable Cost --$10 10 13. Quantity 0 1 2 3 4 5 6 7 Variable Cost $0 10 20 40 80 160 320 640 Fixed Cost $200 200 200 200 200 200 200 200 Total Cost $200 210 220 240 280 360 520 840 Average Fixed Cost --$200 100 66. The marginal cost curve is below the average total cost curve when output is less than 4. as average total cost is rising.5 20 22. 7 .4 Average Total Cost --$210 110 80 70 72 86.5 15 17.5 Marginal Cost --$10 15 20 25 30 35 Figure below graphs the three curves. as average total cost is declining. The efficient scale is 4 houses per month.5 Average Total Cost --$40 27. average total cost (ATC). The marginal cost curve lies above the average variable cost curve. The following table shows average variable cost (AVC).5 25 25 26 27. The marginal cost curve is above the average total cost curve when output is above 4. since that minimizes average total cost. 33.6 540 240 50 50 Marginal cost equals the change in total cost or the change in variable cost. the increase in total cost equals the increase in variable cost and both are equal to marginal cost.3 28. So as quantity increases.3 20 32 53.7 50 40 33. Quantity 0 1 2 3 4 5 6 Variable Cost $0 10 25 45 70 100 135 Total Cost $30 40 55 75 100 130 165 Average Variable Cost --$10 12.
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