Scenario 12-2 Suppose Regina and Ben Receive Great Satisfaction from Their Consumption

question 53

Multiple Choice

Scenario 12-2
Suppose Regina and Ben receive great satisfaction from their consumption of cheesecake. Regina would be willing to purchase only one slice and would pay up to $13 for it. Ben would be willing to pay $17 for his first slice, $14 for his second slice, and $10 for his third slice. The current market price is $10 per slice.
-Suppose Luke values a scoop of Italian gelato at $4. Leia values a scoop of Italian gelato at $6. The pre-tax price of a scoop of Italian gelato is $2. The government imposes a tax of $3 on each scoop of Italian gelato, and the price rises to $5. The deadweight loss from the tax is

• A)$4, and the deadweight loss comes from both Luke and Leia.
• B)$4, and the deadweight loss comes only from Luke because he does not buy gelato after the tax.
• C)$2, and the deadweight loss comes from both Luke and Leia.
• D)$2, and the deadweight loss comes only from Luke because he does not buy gelato after the tax.

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Definitions:

Economies of Scope

Cost advantages that a business obtains through the diversification of its production by producing multiple products from joint inputs.

Economies of Scale

Businesses gain financial benefits from their size of operation, as the cost for each unit of output typically reduces with the expansion of scale.

Economies of Scope

Cost advantages that enterprises obtain due to the efficient management of diverse business activities that enable them to share resources and capabilities across different products or segments.

Product Transformation Curve

Another term for the "production possibility frontier," which shows the different quantities of two goods that can be produced with a given set of resources.