Question

TRUE/FALSE QUESTIONS

19. To maximize welfare in a competitive market that has a negative externality in production, government should tax a pollution-generating good at a unit tax equal to the marginal cost of the externality. 20. If there is deadweight loss, we say a market failure has occurred. 21. If two identical firms behave according to the Stackelberg model, the joint production is higher than if the same firms act as a Cournot. 22. The outcome of the Stackelberg model is a Nash equilibrium

Answer 1

19. False:

Rather the tax should equal the marginal harm of pollution at socially optimal quantity of good.

20. True

An ideal market won't have any deadweight loss and therefore perfect. In case of a deadweight loss, both the consumer and producer are at a welfare loss thus a market failure has occured.

21. True

In case of Stackelberg model, the first firm produces more than the rival and therefore the total production is higher than that of the cournot equilibrium.

22. True

If the first player has played stackelberg, the only possible outcome is nash equilibrium as the second player has to play stackelberg as the best response.

Hope this helps. Do hit the thumbs up. Cheers!