(a) The following table shows the relationship between the number of workers employed and outputs at Wendy's Cafe. Cups of Coffee Produced (per day) Number of Workers 50 95 135 170 200 6. 225 Suppose the market price of cach cup of coffee is $20, and the market daily wage for each worker is S800. In order to maximize profit, how many workers should Wendy's Cafe employ? Explain and show the steps of your calculations. (b) The following diagram shows the market for medical checkup. 20 PV 400 500 What are the equilibrium price and quantity of medical chbeckup? i. Which kind of externality problems exists in the market for medical checkup? How does this externality problem affect the efficiency of the market? Explain in detail. iii. How can the government solve this externality problem? Explain in detail.

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Market Failure Analysis

To understand Market failure, we need to first understand welfare economics. An Italian economist, Vilfredo Pareto stated that allocation of resources in an efficient manner such that an economic change, which harms no one and makes someone better off, indicates an increase in social welfare. It is also called Pareto Optimality, where resources cannot further be reallocated without harming one. This does not apply to those economic changes, which harm some and benefit others. social welfare increases if the utility of any of its members' increases and none decrease in the economy.