Authors libby rittenberg 839
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3. Suppose the owner of the vacant land will provide for and maintain a
neighborhood park at a fee of $125 per acre; the neighbors may lease
up to 5 acres of land per month. Add this information to the graph
you drew in Problem 1, and show the efficient solution. Are the
neighbors likely to achieve this solution? Explain the problems
involved in achieving it.
4. The perfectly competitive blank compact disc industry is in longrun equilibrium, selling blank discs for $5 apiece. Now the
government imposes an excise tax of $2 per disc produced.
1. Show what happens to the price and output of discs in the
short run.
2. Now show the impact in the long run.
3. Who pays the tax? (Note: Show quantities as Q1, Q2, etc.)
5. A monopoly firm has just taken over the blank compact-disc
industry. There have been technological advances that have
lowered production cost, but the monopoly firm charges a price
greater than average total cost, even in the long run. As it turns
out, the firm is still selling compact discs for $5. The government
imposes an excise tax of $2 per disc produced.
1. What happens to price?
2. What happens to output?
3. Compare your results to your answer in Problem 3 and
explain.
6. The following hypothetical data give annual spending on various
goods and services for households at different income levels.
Attributed to Libby Rittenberg and Timothy Tregarthen
Saylor URL: />
Saylor.org
839
