What are the limitations in using break-even analysis?
What will be an ideal response?
It requires the use of linear cost and revenue functions; it isn't applicable if the functions are non-linear. It assumes that there are fixed costs, which means the analysis can be applied only to short-run operations. It can't handle multiple product situations, unless the product mixes are constant. It can't be used to determine profit-maximizing levels of operations.
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Explain how redistributing income creates a deadweight loss
What will be an ideal response?
Compare two situations. (A ) A firm is not legally responsible for damages that result from air pollution caused by its production of steel. (B ) A firm is legally responsible for damages that result from its production of steel
Ronald Coase argued that if the property rights are assigned and transactions costs are low A) bargaining between the firm and the victims of the air pollution caused by the firm would lead to an equal reduction in pollution in situation (A ) and situation (B ). B) bargaining between the firm and the victims of the air pollution caused by the firm would lead to a greater reduction in pollution in situation (A ) than situation (B ). C) bargaining between the firm and the victims of the air pollution caused by the firm would lead to a smaller reduction in pollution in situation (A ) than situation (B ). D) bargaining between the firm and the victims of the air pollution caused by the firm will result in little reduction of pollution in either situation (A ) or (B ) because the firm has greater economic and political power than the victims.