A Firm Has Invented a New Beverage Called Slops

A firm has invented a new beverage called Slops. It doesn't taste very good, but it gives people a craving for Lawrence Welk's music and Professor Johnson's jokes. Some people are willing to pay money for this effect, so the demand for Slops is given by the equation q = 20 - p. Slops can be made at zero marginal cost from old-fashioned macroeconomics books dissolved in bathwater. But before any Slops can be produced, the firm must undertake a fixed cost of $105. Since the inventor has a patent on Slops, it can be a monopolist in this new industry.

A) The firm will produce 10 units of Slops.
B) From the point of view of social efficiency, it is best that no Slops be produced.
C) A Pareto improvement could be achieved by having the government pay the firm a subsidy of $110 and insisting that the firm offer Slops at zero price.
D) The firm will produce 20 units of Slops.
E) None of the above.

Correct Answer:

Verified

Unlock this answer now
Get Access to more Verified Answers free of charge

Access For Free