Answered: 1. A construction company provides free…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1. A construction company provides free first-aid and CPR training to all employees in order to save money on liability insurance. This free training might be an example of a ______ because ______. (Both the example and the explanation must be correct.)

- Rival good because every time someone learns CPR, another person must forget CPR.

- Source of a negative externality because employees are probably bored during the training.

- Source of a positive externality because employees may go on to save the lives of others, even outside the company.

2.The Coase theorem states that interested parties will negotiate to correct externalities if two assumptions are met. What are those two assumptions?

All parties agree on the value of the externality. AND Parties have mutual respect for each other.

Public good because non-employees were prevented from receiving the free training.

No barriers to negotiation. AND All parties agree on the value of the externality.

No barriers to negotiation. AND Property rights are well-defined.

Property rights are well-defined. AND All parties agree on the value of the externality.

O Il only
O I, Il and II
O Il and III only
O I only

The graph below gives marginal costs (MC), average variable costs (AVC), and average total costs
(ATC) for a firm. Note that marginal revenue (MR) is not shown. Suppose the firm operates in a
perfectly competitive market and acts to maximize its profit. which of the following is/are true?
I. At a price of 1.5, the firm will shut down in the short-run.
II. At a price of 0.5, the firm will shut down in the short-run.
III. At a price of 2.5, the firm will make a positive economic profit.
7
MC
АТС
AVC
3
2
1
1
Quantity
2.
4.
Price

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