An externality occurs whenever
A. private costs diverge from social costs.
B. private costs plus internal costs equal social costs.
C. private costs are the same as social costs.
D. private costs are the same as internal costs.
Answer: A
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Let the production function be q = ALaKb. Returns to scale are equal to
A) a ? b. B) a + b. C) La + Kb. D) A ? L.
Suppose two coffee snobs who must have their coffee and cream in exact proportions (each cup is 10 coffee per 1 unit cream) are invited to a weekend long event (during which they can easily consume 8 cups of coffee). Suppose Snob A is given 8 units of cream and Snob B is given 80 units of coffee. The contract curve in the Edgeworth box would be
a. a right angle connecting the lower left corner with the upper right corner. b. a curve (not a line) connecting the lower left corner with the upper right corner. c. a line connecting the lower left corner with the upper right corner. d. a right angle connecting the upper left corner with the lower right corner.