A Firm Has Invented a New Beverage Called Slops

question 15

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 = 10 - 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 $30. Since the inventor has a patent on Slops, it can be a monopolist in this new industry.

• A) The firm will produce 5 units of Slops.
• B) A Pareto improvement could be achieved by having the government pay the firm a subsidy of $35 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 10 units of Slops.
• E) None of the above.

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Definitions:

Egocentrism

A cognitive trait where individuals, particularly children in Piaget's preoperational stage, are unable to see perspectives other than their own.

Centration

A cognitive limitation in early childhood, where a child focuses only on one aspect of a situation or problem, neglecting other important factors.

Perspective

A particular attitude towards or way of regarding something; a point of view.

Egocentric

Pertaining to an inability to understand or consider the perspectives of others, focusing solely on one's own viewpoint.