A Firm Has Invented a New Beverage Called Slops

question 73

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)The firm will produce 10 units of Slops.
• C)From the point of view of social efficiency, it is best that no Slops be produced.
• D)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.
• E)None of the above.

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Definitions:

Installment Payments

Payments made over a period of time to settle a debt, typically including both principal and interest components.

Journal Entries

Records that document all the financial transactions of a business and show the accounts affected by each transaction.

Carrying Value

The book value of an asset or liability on a company's balance sheet, calculated as its original cost minus accumulated depreciation or amortization.

Bonds

A fixed income instrument that represents a loan made by an investor to a borrower, typically corporate or governmental.