Wobble's Weebles Is the Only Producer of Weebles

question 18

Multiple Choice

Wobble's Weebles is the only producer of weebles. It makes weebles at constant marginal cost c(where c > 0) and sells them at a price of p₁ per weeble in market 1 and at a price of p₂ per weeble in market 2. The demand curve for weebles in market 1 has a constant price elasticity of demand equal to -2. The demand curve for weebles in market 2 has a constant price elasticity equal to - . The ratio of the profit-maximizing price in market 1 to the profit-maximizing price in market 2 is

• A) 2/3
• B) 1/3
• C) 3/2
• D) 3
• E) dependent on the value of

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Definitions:

Free Market

An economic system where prices for goods and services are determined by the open market and consumers, with minimal government intervention.

Optimal Pigouvian Tax

A type of tax designed to correct the negative externalities of a market activity, set at a level that equates the marginal social cost of the externality with the marginal private cost.

Socially Optimal

A condition where resources are allocated in a way that benefits society as a whole, maximizing overall welfare.

Pollution

The introduction of contaminants into the natural environment that cause adverse change, affecting air, water, and land.