Given High Transactions Costs, the Best Way to Deal with a Positive

question 23

Multiple Choice

Given high transactions costs, the best way to deal with a positive externality is

• A)to tax it.
• B)to subsidize it.
• C)to allow both parties to negotiate.
• D)to limit the extent of the externality.

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Definitions:

Average Total Cost

is the total cost of production (fixed and variable costs combined) divided by the quantity of output produced.

Economic Profits

Represents the difference between a firm's total revenues and its total costs, including both explicit and implicit costs.

Monopolistically Competitive

A type of market organization where a large number of enterprises sell products that are closely related but not exact replicas, enabling these firms to possess a measure of market control.

Purely Competitive

A market structure characterized by a large number of buyers and sellers, homogenous products, and the ease of entry and exit, leading to price determination by the market.