Question

True or False
a) The Coase theorem says that private solutions to externality problems are always possible no matter whether property rights are well established or not.
b) A public good is defined as a good that is both non-excludable and non-rival.
c) In production, economic profit is the difference between accounting profit and implicit costs.
d) Ralph owns a small pizza restaurant, where he works full time in the kitchen. His total revenue last year was $100,000. It cost $3,000 per month to lase his store last year. He paid his one employee #2,000 per month , and the cost of ingredients and overhead was $500 per month . Ralph could earn $35,000 per year as the manager of competing pizza restaurant nearby. His total economic profit for the last year is -1,000.

Answer 1

A) The Coase theorem states that when there is a conflict of property rights, that is, no matter what the initial allocation of property rights are, private Economic actors can always solve the problem of externalities among themselves and reach an efficient outcome if they can bargain without cost.

Answer: True

B) A public good is both non excludable (it's not possible to exclude individual from Consuming the good even if they don't pay for it) and non rival (one person's Consumption doesn't reduce the amount available to others).

The given statement is TRUE.

C) Economic profit = Total revenue - explicit cost - implicit cost

Accounting profit = Total revenue - explicit cost

Therefore, Economic profit = Accounting profit - implicit cost

Answer: True