Author Question: Refer to Table 9-13. Consider a simple economy that produces only three products: tacos, earplugs, ... (Read 82 times)

clmills979

  • Hero Member
  • *****
  • Posts: 551
Refer to Table 9-13. Consider a simple economy that produces only three products: tacos, earplugs, and toothbrushes. Use the information in the table to calculate the inflation rate for 2016, as measured by the consumer price index.
 
  What will be an ideal response?

Question 2

XYZ Corporation operates in a perfectly competitive market and is currently maximizing profit. To keep the firm's costs low, XYZ's managers have decided to dump waste in a nearby river.
 
  Explain why the level of output currently produced by XYZ is not efficient.



phuda

  • Sr. Member
  • ****
  • Posts: 348
Answer to Question 1

Total expenditures for 2001 = (5  1.50 ) + (10  6.00 ) + (3  2.50 ) = 75.00.
Total expenditures for 2015 = (5  2.00 ) + (10  7.50 ) + (3  3.50 ) = 95.50.
Total expenditures for 2016 = (5  2.25 ) + (10  7.00 ) + (3  3.50 ) = 91.75.

The CPI for 2015= (95.50/75.00 )  100 = 127.33
The CPI for 2016 = (91.75/75.00 )  100 =122.33.
So, the inflation rate for 2016 = ((122.33  127.33 )/127.33 )  100 ) = 3.9.

Answer to Question 2

Dumping in the river creates a negative externality. Thus, there is a cost involved in the production by XYZ that is being borne by third parties. If the firm is maximizing profit and producing where price is equal to the firm's marginal costs, the firm will produce a level of output for which the true cost (private + external cost) is greater than the price. This means that the level is output is greater than the efficient level of output.



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
 

Did you know?

Hip fractures are the most serious consequences of osteoporosis. The incidence of hip fractures increases with each decade among patients in their 60s to patients in their 90s for both women and men of all populations. Men and women older than 80 years of age show the highest incidence of hip fractures.

Did you know?

Throughout history, plants containing cardiac steroids have been used as heart drugs and as poisons (e.g., in arrows used in combat), emetics, and diuretics.

Did you know?

Thyroid conditions cause a higher risk of fibromyalgia and chronic fatigue syndrome.

Did you know?

Studies show that systolic blood pressure can be significantly lowered by taking statins. In fact, the higher the patient's baseline blood pressure, the greater the effect of statins on his or her blood pressure.

Did you know?

Your heart beats over 36 million times a year.

For a complete list of videos, visit our video library