Part-1
Q1 Externalities are third party consequence of some other action. They can be positive or negative externalities and they impose a benefit or cost to a third party. Identify a positive and a negative externality. Discuss the benefits and costs associated with each type of externality. What happens to the Supply and/or Demand curve in each of your examples?
Q2 Economies of scale is a concept that says as firms get larger, they become more efficient and their costs of production decrease. This being the case, why don't firms continue to get infinitely larger? Use at least 2 examples, including graphs, in your response
Q3 A firm's costs can be divided into fixed costs and variable costs. Identify each of the following as either a fixed or variable cost. Then, identify that same costs as being an explicit cost or an implicit cost. Give the rationale for each of your answers.
A. Labor costs
B. Materials costs
C. Entrepreneur's profit
D. Gasoline used in delivery trucks
E. Electricity costs
Part-2
Q1 In order to maximize profits or minimize losses, a competitive firm will produce at the point where MC = MR. Do you agree or disagree with this statement? Explain your answer and use at least 2 examples in your response
Q2
For each of the following statements, identify the type of market it describes. Use an example from the readings or the internet for each characteristic and explain your choice.
A. The company practices product differentiation
B. The firm earns an economic profit in the long run
C. Maximizes profits by equating MC and MR
D. Has demand curve that is downward sloping
E. Is in a market where new firms can enter the industry selling similar product.
Q3:
Oligopoly Market Now word limitation
The majority of the world's diamonds comes from Country A and Country B. Suppose that the marginal cost of mining a diamond is $1,000 per diamond and that the demand schedule for diamonds is as follows:
|
Price
|
Quantity
|
|
$ 6,000
|
5,500
|
|
5,000
|
6,500
|
|
4,000
|
7,500
|
|
3,000
|
8,500
|
|
2,000
|
9,500
|
|
1,000
|
10,500
|
A. If there were MANY sellers of diamonds, what would equilibrium price and quantity? Why?
B. If there were only one seller, what would be the equilibrium price and quantity? Why?
C. If Country A and Country B formed a cartel, What would be the equilibrium price and quantity? Why?
D. Is this cartel likely to survive? Why or why not?