Question

1.Table 27

Labor	Output	Marginal Product of Labor	Marginal Revenue Product of Labor	Wage
0	0	---	---	---
1	400	400	$800	$450
2	700	300	$600	$450
3	950	250	$500	$450
4	1050	100	$200	$450

Refer to Table 27. How many workers should the firm hire?

A.1

B. 2

C. 3

D. 4

2. If education produces positive externalities and the government does not intervene in the market, we would expect

Group of answer choices

A. ​the market equilibrium price to be higher than the efficient equilibrium price.

​B. the market equilibrium quantity to be lower than the efficient equilibrium output level.

C.​the market equilibrium quantity to be higher than the efficient equilibrium output level.

D.​none of the above

3.Which of the following is false?

A. ​The nature of public goods is such that the government cannot accurately assess the benefits of those affected.

​B. National defense and flood control are illustrations of public goods.

C. ​Just as in the case of external costs, public goods tend to be underprovided by the private sector.

D. ​All of the above are true.

Answer 1

1. (c) 3 workers

When the wage rate is $450, the firm will hire 3 workers since the marginal revenue product is greater than the wage rate up to this point. Therefore, if firm will hire more workers they will suffer from loss as their cost of employing that unit is higher.

2. ​(b) the market equilibrium quantity to be lower than the efficient equilibrium output level.

In the case of positive externalities, the social marginal benefit curve exceeds private marginal benefit curves. But the equilibrium is struck where private marginal benefit = private marginal costs. Thus there tends to be undersupply of goods with positive externalities without government intervention.

3. (c) ​Just as in the case of external costs, public goods tend to be underprovided by the private sector.

Statement D is false: Just as in the case of external benefits, public goods tend to be under-provided by the private sector. In the case of external costs, private goods are oversupplied by the private sector.

Statement A is true: The nature of public goods is such that the government cannot accurately assess the benefits and costs of those affected. Often, it has to make educated guesses regarding the negative and positive effects of producing a public good.

Statement B is true: National defense and flood controls are examples of public goods, since they meet the conditions of being non-excludable and non-rival. Other examples are mosquito eradication, weather prediction, etc.