Setting a Production Quota Does Not Always Achieve the Efficient

question 77

Multiple Choice

Setting a production quota does not always achieve the efficient use of a common resource because

• A)marginal cost differs for each producer and it is in everyone's self-interest to cheat and produce more than the assigned quota.
• B)the marginal private benefit from a production quota is zero.
• C)marginal cost differs for each producer and the marginal social benefit from a production quota is zero.
• D)a production quota does not totally eliminate the problem of free-ridership of a common resource.
• E)the Coase theorem is invalid in this market.

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Definitions:

Proprietorship

A business entity owned and operated by a single individual, with no legal distinction between the owner and the business.

Corporation

A legal entity that is separate from its owners, with the ability to own assets, incur liabilities, and sell stocks.

Issuing Stock

The process by which a company distributes its shares to investors, thereby raising capital in exchange for ownership interests in the company.

Corporation

A legal entity that is separate from its owners and shareholders, which can own assets, incur liabilities, and conduct business.