Question

16. In the long run, if a firm’s output doubles and its unit costs triple, this is an example of:

A) economies of scale B) diminishing returns to scale c) diseconomies of scale D) constant scale

17. The biggest problem stopping private firm from offering an adequate supply of public goods is; A) free-ridership B) tragedy of the commons C) the sword of Hercules D) bifurcation

18. If there are positive externalities created by a market, the market will give you A) too little quantity and too low a price B) too high quantity at too low a price c) too low quantity at too high a price.

D) too high a quantity at too high a price

19. Markets may not always be sufficient solution due to: a) lack of competition B) insufficient information C)the public goods problem D) all the above are possibilities

20. The yeti, sasquatch, and Big Foot may all have evolved from a common ancestor such as

A) Gigantopithecus B) Plesiosaurs C) Tasmanian Devils D) Pterodactyls

Answer 1

Ans) 1) Diseconomies of scale is when long run average cost increases with output.

Option c.

2) Free rider problem is when a person enjoys the benefit without giving the right price or at all for it. And since public goods are non excludable and non rivalrous, private firms cannot earn profit due to free rider problem.

3) Positive externality is when the bystander bears the benefit of any activity. In market outcome, quantity consumed/produced is too less due to presence of external benefits which are not taken into account.

4) There can be many reasons for market failure, viz, externality, public goods, monopoly (i.e no competition), asymmetric information etc.