What is a market failure?
A) It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal social cost.
B) It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefit equals marginal private cost.
C) It refers to a situation where an entire sector of the economy (for example, the airline industry) collapses because of some unforeseen event.
D) It refers to a breakdown in a market economy because of widespread corruption in government.
Answer: A
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In the above figure, what is the amount of the tax per compact disc?
A) $10 B) $20 C) $30 D) $40
Homer's Holesome Donuts has determined that its profit-maximizing quantity is 10,000 donuts per year. Homer's earns $12,000 in revenue from the sale of those donuts. Homer's has two costs
First he pays $16,000 in annual rental payments for its five-year lease on its store. Second Homer incurs an additional cost of $5,000 for ingredients. Should Homer's shut down in the short run? A) Yes, because he is incurring an economic loss. B) Yes, because he cannot cover all of his fixed costs. C) No, because is making positive economic profit. D) No, because he can cover all of his variable costs.