ECON 431 Final: ECON 431 Cal Poly SLO 2009 Final Exam
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Round off values to one decimal place where necessary. In an ideal socialist system, natural resources are owned by all the people rather than by individual, profit- maximizing firms. Socialist governments claim to work for the welfare of the people. However, the record seems to show that such socialist systems use their natural resources very inefficiently. In fact, many socialist governments are now attempting to privatize many of their industries to avoid such inefficiencies. Think before you start and keep your answer short and to the point. Question 2. (30 points) environmental policy and firm profitability. Draw a diagram that shows a competitive equilibrium with a negative pollution externality related to output (q). Define the competitive output level and price as (qc,pc). Show on your diagram that a pollution standard (or quota) that achieves the socially optimal resource allocation (q*) can increase firm profits (producer surplus). Question 3. (30 points) controlling pollution at the widget factory.
