Question

2. You are a professional economist, and occasionally contract your services to criminal

enterprises. Assume that all of these organizations work in perfectly competitive settings.

Each company is trying to determine if it should produce more, or less, output, in order

to maximize profits. However, because what they do is illegal, the companies are not

willing to share with you how much they produce.

Should each of these firms produce more, or produce less?

a) Garibaldi Industries, purveyors of candied cocaine. Price = $300 per gram;

marginal cost= $200 per gram. Gastric verdict: delicious!

b) Han’s Handguns, dealers in the Stechkin APS, a banned gun. Price = $320 per

gun; marginal cost = $450 per gun.

c) Ilya’s Ivory, a family business that sells poached ivory tusks.

Price=$50,556 per tusk; marginal cost=$20,456 per tusk.

d) Pavlov’s Prospects, forgers of official documents. Price per fake passport =

$8,000; marginal cost per fake passport=$12,000.

1

Answer 1

a) Garibaldi Industries has a Price = $300 per gram; and marginal cost= $200 per gram. We see that P >MC. Since perfectly competitive firm should produce so much so that P = MC. It should produce more

b) Han’s Handgun has a Price = $320 per gun and a marginal cost = $450 per gun. We see that P < MC. Since perfectly competitive firm should produce so much so that P = MC. It should produce less to reduce MC.

c) Ilya’s Ivory has a Price=$50,556 per tusk and marginal cost=$20,456 per tusk. Since perfectly competitive firm should produce so much so that P = MC. It should produce more

d) Pavlov’s Prospects has a Price per fake passport =$8,000 and marginal cost per fake passport=$12,000. Since perfectly competitive firm should produce so much so that P = MC. It should produce less.