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Unformatted text preview: Microeconomics 100A, Fall 2009 Econ 100A - Problem Set 3 1 True/False/Explain 1. When MC is constant and there are fixed costs in production, we have economies of scale. 2. The government wants to raise taxes in order to finance ongoing expenditure. However, unemployment problems are pressing and a main goal is to find an output tax which will not decrease output by too much. Due to your expert knowledge in firm behavior and market equilibrium, the government consults you to choose an industry tax which will have a small effect on industry output. You can choose between a tax in industries A and B. Firms in both industries face identical demand functions, but the production technologies are different. Both industries use only labor as input. In industry A, one worker can assemble one piece of output a day, whereas in industry B, workers are more productive when there are fewer of them. Your boss needs to go to a press conference later today to announce the government policy and asks you what to do.policy and asks you what to do....
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