1. An externality is a benefit or harm that comes from a transaction and affects people uninvolved in the transaction.
- Superb. Concise and expresses the core.
2. If your total revenue was maximized and your marginal revenue was positive, then your total revenue would increase. This is not possible, because your total revenue is maximized. If your marginal revenue was negative, then you would decrease your output. Then your total revenue would increase.
- Superb again. Note a subtle point grammar: "If ... your marginal revenue WERE positive" is preferred, rather than "was positive."
3. My favorite is question 35. It is a difficult question that requires some thought, but it is really just math.
4. A cigarette is a negative externality. A positive externality could be an aircraft carrier.
- Excellent about cigarettes. I'm not sure I see the third party benefits to an aircraft carrier, unless you mean the pilots and people it the carrier helps protect.
5. It would be a bad idea because if one person bought it, then any number of people could enjoy it without paying.
6. A and B are substitutes, because when the price for good B increases, the demand for good A increases. C and D are complements because when price for good D increases, demand for good C decreases.
- Perfect! 60/60.--Andy Schlafly 23:00, 25 November 2009 (EST)