ECON 1 F96 Prof. M. Olney Second Midterm 1. Frozen yogurt and ice cream are substitute goods. In Berkeley, the market for these goods is characterized by monopolistic competition. Suppose Yogurt Park, a seller of frozen yogurt, earned abnormal profit in the 1980s. As a result, in 1991 Ben & Jerry's opened an ice cream store nearby. What effect would this have on Yogurt Park's profit? Why? Illustrate your answer with a graph. 2. Smoking creates negative externalities in the form of second-hand smoke, an apparent cancer-causing agent. A restaurant wants to serve both smoking and non-smoking patrons, but is willing to charge them different prices for the same meal. Use the graph at right to illustrate the optimal price the restaurant should charge a smoker for her/his meal. What should happen to the number of smoking patrons at the restaurant? Explain. Rising Tide," #6) and by Marian Wright Edelman ("Vanishing Dreams of America's Young Families,"
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This test prep was uploaded on 04/01/2008 for the course ECON 1 taught by Professor Martholney during the Spring '08 term at University of California, Berkeley.