In the Absence of Government Interference, There Is a Constant

question 29

Multiple Choice

In the absence of government interference, there is a constant marginal cost of $6 per ounce for growing marijuana and delivering it to buyers.Suppose that government authorities seize shipments whenever they find them and resell the marijuana that they seize on the open market.The probability that any shipment of marijuana is seized is .10.If a shipment is seized, there is no other punishment besides loss of the marijuana that is seized.The effect of the government action is to

• A)leave prices unchanged.
• B)raise the equilibrium price by $.67.
• C)lower the equilibrium price by $.33.
• D)raise the equilibrium price by $1.33.
• E)raise the equilibrium price by $.60.

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Definitions:

Current Ratio

A liquidity ratio that measures a company's ability to cover its short-term obligations with its current assets.

Accounts Receivable Turnover

A measure of how quickly a company collects cash from its customers, calculated as sales divided by the average accounts receivable.

Price-Earnings Ratio

A valuation metric comparing a company's current share price to its per-share earnings, used by investors to evaluate the relative value of a company's shares.

Working Capital

Current assets less current liabilities.