Author Question: Assume that we only have data on total cost when output is equal to zero and no other cost ... (Read 89 times)

Jkov05 · **on:** Jun 29, 2018

Assume that we only have data on total cost when output is equal to zero and no other cost information at our disposal. How could we possibly know what the fixed costs are for the firm?

What will be an ideal response?

Question 2

Comment on the following statement: The Coase theorem implies that the contending parties will come to the efficient solution regardless of where rights are initially assigned.

What will be an ideal response?

Bison · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

If we know what the total costs are at an output level of zero we don't need any more information to figure out the fixed costs. In this case the fixed costs would equal to the total costs since at an output level of zero there wouldn't be any variable costs. Since total costs is the sum of the fixed and variable costs this is what allows us to say that total costs equal the fixed costs of the firm.

Answer to Question 2

The statement is true. Suppose one individual likes it quiet while his neighbor likes loud music. If the individual has the right to a quiet environment, his neighbor can pay him to allow some noise. On the other hand, if he has no right to a quiet environment, he can pay his neighbor to refrain from making noise.