A Firm Has Invented a New Beverage Called Slops

question 76

Multiple Choice

A firm has invented a new beverage called Slops. It doesn't taste very good, but it gives people a craving for Lawrence Welk's music and Professor Johnson's jokes. Some people are willing to pay money for this effect, so the demand for Slops is given by the equation q = 14 - p. Slops can be made at zero marginal cost from old-fashioned macroeconomics books dissolved in bathwater. But before any Slops can be produced, the firm must undertake a fixed cost of $54. Since the inventor has a patent on Slops, it can be a monopolist in this new industry.

• A) The firm will produce 7 units of Slops.
• B) A Pareto improvement could be achieved by having the government pay the firm a subsidy of $59 and insisting that the firm offer Slops at zero price.
• C) From the point of view of social efficiency, it is best that no Slops be produced.
• D) The firm will produce 14 units of Slops.
• E) None of the above.

---

Definitions:

Double-Blind Procedure

A research or testing method in which neither the participants nor the experimenters know who is receiving a particular treatment, to prevent bias.

Experimenter's Bias

A distortion in research outcomes due to the researcher's expectations influencing the study.

Social Desirability

The tendency of respondents to answer questions in a manner that will be viewed favorably by others, often leading to over-reporting of 'positive' behaviors or under-reporting of 'negative' behaviors.

Independent Variable

In experimental and statistical research, the variable that is manipulated or changed to observe its effect on a dependent variable.