Question

your answer. A fully labeled graph is a welcome addition to any answer (if applicable), though it is not necessary.                                                                                                       

A) In the short-run, average variable cost converges to average total cost as output increases.

B) The tragedy of the commons states that individuals will overproduce a common                        resource.

C) When evaluating social welfare, a government must take a subjective stance on what constitutes welfare.

D) Absent government intervention, a perfectly competitive market maximizes total surplus.

Answer 1

(A) In the short-run, average variable cost converges to average total cost as output increases. True.

This statement is true because as the output increases, the fixed cost component in the total cost starts to decline and the variable cost component starts to rise. Thus, in higher levels of output, the Average Variable Cost comes closer to Average Total Cost.

(B) The tragedy of the commons states that individuals will overproduce a common resource. False.

The tragedy of the commons states that the individuals will overconsume and not overproduce a common resource. This is due to non excludability, there is lack of ownership which makes a resource to be overused.

(C) When evaluating social welfare, a government must take a subjective stance on what constitutes welfare. False.

The above statement is false because a subjective stance on welfare is highly discriminatory in nature and unequal for the people who are not in the welfare umbrella. The theories conducted suggests that the subjective indicators of welfare do not reflect the social preferences of welfare. Many objective criterias such as eradication of poverty, living standards are far superior than the subjective stance of utility measurement of welfare.

(D) Absent government intervention, a perfectly competitive market maximizes total surplus. True.

The above statement is true because in the absence of government intervention a prefectively competitive market maximizes total surplus. The socially optimal quantity is produced at the lowest price level is charged due to competitive forces and there is no social welfare loss.