Assignment 2

Carlos Graterol September 14, 2008 Exercise 2 1. Returns to scale are increasing, because ATC is decreasing, MC is less than ATC. 2. A. 4000 b. $10.00 c. $12.00 d. $2 per 1,000 gallons 3. A. 2000 b. $20.00 4. Less than 5. 200 6. 400 7. $2,000 8.)Complete the following statement: With a positive externality or external benefit, marginal socialbenefit at each quantity is (greater than) marginal private benefit, and the private equilibrium quantity is (less than) the socially efficient quantity. 9.) 4 Hours 10.) 2 Hours 11.) 2 Hours 12.) Complete the following statement: With a negative externality or external cost, marginal social cost at each quantity is (greater than, equal to, less than) marginal private cost, and the private equilibrium quantity is (greater than, equal to, less than) the socially efficient quantity. 13.) They are alike in the sense that the same principle applies for both answers. An individual agent will acquire something if MB=MC, and the social cost will have no bearing on what the individual will do. When the good is beneficial to society as a whole, it is not used at the efficient quantity because the individual’s usage of the good will not be enough to be at the efficient point of society; when the good has negative externalities that do not cost the individual anything, the good will be oversupplied and the good will not be produced at the efficient quantity. Graph Graph

Graph ForRecreational Activities.