Question

In the figure above, if the government provides level Q₂ of the public good:

Group of answer choices

a. it leads to a welfare gain because it creates jobs in the public sector.

b. it is the optimal level.

c. it is less than the optimal level Q₃.

d. it leads to a welfare loss because the MC is less than the sum of the marginal benefits.

Refer to the figure above. A yardstick pricing proposal will require:

Group of answer choices

a. no government subsidy.

b. a “lump sum” subsidy only if the hospital is losing money.

c. a “lump sum” subsidy of no more than one dollar per unit produced.

d. a lump sum subsidy equal to the average fixed cost multiplied by the quantity produced.

In the figure above, if triangle A equals triangle B, and bureaucrats provide a program at level Q₁, then they have:

Group of answer choices

a. chosen a level that is economically desirable because marginal benefits exceed marginal costs.

b. chosen a level at which marginal benefits equal marginal costs.

c. provided an inefficiently large amount of the output.

d. Answers (a) and (c) are correct.

The “welfare” loss due to monopoly can be calculated as:

Group of answer choices

a. P₂ × (Q₂–Q₁)

b. (P₁–P₂) × (Q₂–Q₁)

c. (P₁–P₂) ×(Q₂–Q₁)/2

d. (P₁–P₂) × Q₁

Answer 1

1> a. it leads to a welfare gain because it creates jobs in the public sector.

Since the cost is not borne by the public, the welfare gain benefit goes to the public although it is not a optimal outcome which would be Q1.

2> b. a “lump sum” subsidy only if the hospital is losing money.

It is because they are earning profit if we ignore the fixed cost. After inserting fixed cost into the equarion, if they are making loss, subsidy can be provided.

3> a

It is definitely desirable as total benefit definitely exceeds the total cost.

4> c. (P1–P2) ×(Q2–Q1)/2

The reason is, in a free market Q2 will be produced and in monopoly, Q1 is produced. Thus, the welfare loss will be the same as the area of the triangle. Thus, c is correct.