Suppose there are two firms on a river and the production processes of both require clean water. The upstream firm's process dirties the water, which it dumps back into the river. The downstream firm must clean the water before using it in its production
process. If the two firms would merge
A) the external costs of the merged firm would equal the external costs of the upstream firm, which would then be passed on to its customers.
B) the total costs of production fall since the external costs disappear.
C) the external costs of the upstream firm are private costs after the merger.
D) the internal costs of the downstream firm become external costs of the merged firm.
Answer: C
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Colombia has an absolute advantage in
A. coffee and a comparative advantage in hot dogs.
B. neither coffee nor hot dogs, but a comparative advantage in hot dogs.
C. neither coffee nor hot dogs, but a comparative advantage in coffee.
D. neither coffee nor hot dogs, but a comparative advantage in both hot dogs and coffee.
Refer to the information provided in Figure 34.4 below to answer the question(s) that follow.
Figure 34.4Refer to Figure 34.4. The demand and supply of pounds are S2 and D2. Which of the following can change the equilibrium exchange rate ($/pound) to $2.50 and the equilibrium quantity to 400 pounds?
A. an increase in the price level in Great Britain B. a decrease in the price level in the United States C. a sudden dislike of British products in the United States D. an increase in income in the United States