A Jury Ordered McDonald's to Pay $2

question 15

Multiple Choice

A jury ordered McDonald's to pay $2.7 million to Stella Liebeck, a drive-through customer who burned herself with hot coffee after placing the cup between her legs to remove the top and add cream: she claimed that the coffee was too hot. This tells us the our legal system can:

• A) promote efficiency by making property rights secure.
• B) promote efficiency by lowering transactions costs.
• C) lower costs by creating incentives to litigate frivolous suits.
• D) raise costs by creating incentives to litigate frivolous suits.

---

Definitions:

Colluding Oligopoly

A market situation where a small number of firms agree to manipulate market conditions, such as price or output, for mutual benefit.

Industry Profit

The total earnings before tax and interest of firms within a particular industry, after all expenses have been deducted from revenues.

Identical Cost Structures

Situations in which businesses have the same fixed and variable costs in their production processes.

Profit-maximizing Output

The level of production at which a firm achieves the highest possible profit, determined by the point where marginal revenue equals marginal cost.