Economics Homework Ten Answers - Student Eight

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Duncan B.

Economics Homework 10

1. Externalities are indirect results of the production or use of goods, which are not needed or necessarily wanted, but they exist for many goods.

OK, but this definition does not expressly convey the benefits and harms that externalities bring to third parties.

2. When total revenue is maximized, it is impossible for you to make any more money. Therefore, marginal revenue, which is the amount gained for one additional unit, is zero; if you make one more unit you will not be able to gain any more revenue. (In other words, demand exactly equals supply.)

This doesn't fully explain why marginal revenue is zero, and the equilibrium where demand exactly equals supply typically does not entail maximum revenue. Firms could increase supply beyond where demand equals supply, and sell the increased quantity at a lower price, at lower profits, but at greater revenue. (Minus 1)

3. I like question #35, as it is simply a matter of mathematics, and realizing what your answer means, but you have to look at it for a few minutes to understand it. (I looked at it for a few minutes and failed to understand it.)


4. A positive externality might be the printing press; its inventor, Gutenberg, never became rich and actually had all his equipment taken in a lawsuit, but his invention created an enormous benefit for society. A negative externality might be the noise created when aircraft take off from an airport: people living nearby have to endure the sound although they did not pay for a ticket.

Superb examples, could be the model.

5. By definition, public goods are available to all as soon as one person pays for them. Private firms usually do not produce them because they can only sell a very few, although there is a high demand, and the majority of the people who can enjoy it do not have to pay the firm.


6. A and B are substitutes; as the price for good B rises, the demand for good A rises. C and D are complements: as the price for good C increases, the demand for good D increases.


7. The four factors of production are land, the actual territory owned, capital, the amount of money controlled, labor, the workers, and entrepreneurship, the inventiveness and efforts of the managers.


8. If P=30/Q, then PQ=30, therefore total revenue (PxQ) is always 30. No matter how much you vary price or output, revenue remains the same, thus the good is unit elastic, meaning its price elasticity is 1.

Good. If more ambitious, you might also try to prove that its elasticity remains constant by using the equation for elasticity (but I haven't done that yet myself, and no other student has either).

9. A public good is a good that is not consumable, but remains basically the same as time goes by.

Interesting and insightful.

10. In question #16, it is nearly impossible to maximize total revenue for a firm; you can always get something for the extra unit. The marginal revenue would drop below marginal costs, but you would still get some revenue.

Well done! 89/90. Congratulations!--Andy Schlafly 22:50, 25 November 2009 (EST)