1) A One person argues that education is a common resource while another argues that it is a natural monopoly (club good). Is it possible that both of these individuals are correct? Explain...
B. An excise tax is a tax on a specific good, specifically taxes on cigarettes, alcohol and gasoline. Every time someone purchases one of these goods that individual will pay a percentage (say 9%) of the total sales. Some would argue that this is a proportional tax while others would argue that the tax is regressive. Who is right and who is wrong? Is it possible that both of them are correct or incorrect? Explain...
2. Nimbus, Inc., makes brooms and then sells them door-to-door. Here is the relationship between the number of workers and Nimbus's output in a given day:
|
Workers
|
Output
|
Marginal Total
|
Total Cost
|
Average Total Cost
|
Marginal Cost
|
|
1
|
20
|
20
|
300
|
10
|
-
|
|
2
|
50
|
30
|
400
|
8
|
3.33
|
|
3
|
90
|
40
|
500
|
5.5
|
2.5
|
|
4
|
120
|
30
|
600
|
5
|
3.3
|
|
5
|
140
|
20
|
700
|
5
|
5
|
|
6
|
150
|
10
|
800
|
5.5
|
10
|
A. If the price of brooms is at $2.5, what output would Nimbus choose to maximize profit? At which quantity does the firm experience economies of scale? Explain each question...
b. Graph the average total cost, marginal cost curve, and the area of the profit (loss) for this problem. In your graph, be sure to include the quantity where profits are maximized.
c. Why does the average total cost fall at the beginning and then rise after producing the 5th quantity?
3. A. Diagram the market for education, labeling the supply curve, demand curve, and the socially responsible outcome. If the government decided to internalize the externality, what type of government policy should they impose to get a socially responsible outcome?
B. Discuss the concepts of horizontal equity and vertical equity. Why are these concepts hard to apply?
C. Are externalities associated with common resources generally positive or negative? Use examples in your answers. Is the free-market outcome of common resources generally greater or less than the social outcome? Explain...
4. Nimbus, Inc., makes brooms and then sells them door-to- door. Here is the relationship between the number of workers and Nimbus's output in a given day:
|
Workers
|
Output
|
Marginal Product
|
Total Cost
|
Average total Cost
|
Marginal Total Cost
|
|
0
|
0
|
---
|
80
|
---
|
---
|
|
1
|
10
|
10
|
100
|
|
|
|
2
|
40
|
30
|
150
|
|
|
|
3
|
100
|
60
|
200
|
|
|
|
4
|
150
|
50
|
450
|
|
|
|
5
|
180
|
30
|
900
|
|
|
A. Fill in the columns for average total cost and marginal cost.
B. Looking at this table, is there any evidence that workers are working better together? Give two pieces of evidence and explain...
C. Let's suppose that the overall price of brooms is above the efficient scale of Nimbus and as this market makes the transition to its long-run equilibrium, will the price rise or fall? Will the quantity supplied by each firm rise or fall? Explain...