A Firm Has Invented a New Beverage Called Slops

question 54

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 = 14 -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 $54.Since the inventor has a patent on Slops, it can be a monopolist in this new industry.

• A)The firm will produce 7 units of Slops.
• B)A Pareto improvement could be achieved by having the government pay the firm a subsidy of $59 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 14 units of Slops.
• E)None of the above.

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Definitions:

Meaningful

Anything that holds significant purpose or value for an individual, making it worthwhile and important.

Overgeneralization

The application of a rule or conclusion to more instances than is justified, often leading to mistaken beliefs or misjudgments.

Traditional Thinking

A mindset adhering to established practices, beliefs, or methods, often resistant to change or innovation.

Casual Observation

An informal or unstructured method of noticing and recording events or behaviors without systematic analysis.