How Could You Use the Coase Theorem to Predict What

question 18

Essay

How could you use the Coase theorem to predict what would happen when smoke from a factory created dirty air and slightly acid rain for all the residents in the area in a one-kilometre radius of the plant?

---

Definitions:

Average Revenue

Average revenue is the amount of income generated per unit of goods or services sold, calculated by dividing the total revenue by the number of units sold.

MC < MR

A condition in economic theory indicating that to maximize profit, a firm should produce more units as long as the marginal cost (MC) of producing an extra unit is less than the marginal revenue (MR) gained by selling it.

Profits

The financial gains attained when the revenues from business activities exceed the expenses, costs, and taxes needed to sustain them.

Lowering Price

The act of reducing the cost at which goods or services are sold, often to attract more customers or match competitors' offers.