Author Question: How do government policies that enforce property rights affect economic growth? What will be an ... (Read 88 times)

jessicacav · **on:** Jun 29, 2018

How do government policies that enforce property rights affect economic growth?

What will be an ideal response?

Question 2

The Whatsa Widget Company produces widgets in a perfectly competitive market. The price of a widget is 9 . Whatsa is currently producing at a rate where the marginal cost of production is 15 .

Is this company maximizing profit at its current level of output? Explain.

mistyjohnson · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

Without enforceable property rights, entrepreneurs lose the incentive to take on risk because they are not assured ownership of their resources. Economic growth suffers as a result. Failure to protect intellectual property rights has a similar impact. If the benefits of technological advances are shared with all firms, each individual firm has little incentive to invest in the costly research and development necessary for technological progress to continue.

Answer to Question 2

No, the company is not maximizing profit because marginal revenue is not equal to cost. In fact, the cost of the last unit produced (15) is greater than the revenue that the firm gained from its sale. Thus, the firm lost money on the last unit sold. To maximize profits, the firm needs to lower its level of output.