A chemical factory and a fishing club share a lake. Producing chemicals creates water pollution that harms the fish. Initially the lake is owned by no one.
Keeping in mind the Coase theorem, suppose transactions costs are low and the fishing club is given ownership of the lake. Compared to the situation with no property rights, the quantity of chemicals produced A) will decrease.
B) will stay the same.
C) will increase.
D) changes, but the direction of the change is ambiguous.
Question 2
Cindy's Sweaters' production function is shown in the above table. Cindy rents two knitting machines for 30 a day each and hires workers at a wage rate of 40 a day.
If Cindy produces 20 sweaters per day, what is her average fixed cost of production? A) 3.00
B) 3.33
C) 8.00
D) 11.00
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