Consider a market with a downward sloping demand. You find that a firm chooses to produce at a quantity where MR = MC. The product that this firm produces creates a negative externality. Under which of the following conditions could this be a profit maximizing outcome and efficient output level?

1. If it is in a perfectly competitive industry.
2. If the firm perfectly price discriminates.
3. If the firm is a single price monopolist.

Group of answer choices

Both 1 and 3

Only 3

Both 1 and 2

All of the above

Only 1

QUESTION 2

EnergyInc is a monopolist producing electric power using natural gas. Their average total cost is decreasing but the marginal cost is constant at MC > 0. The demand curve is downward sloping. EnergyInc must abide by marginal cost pricing but receives a lump-sum subsidy from the government, covering any possible losses. Natural gas prices have decreased this past year. How will this change the government's subsidy?

Group of answer choices

The subsidy will stay the same

The subsidy will increase

The subsidy will decrease

The subsidy was and is still equal to zero because there are no losses

QUESTION 3

Two team members on a crew team, Hannah and Lexi, need to decide how much effort to put into a race. Each can choose either effort (E) or shirk (S) (shirk means no effort). The payoff matrix is specified as follows:

Hannah Effort (E) Shirk (S) 0 Effort (E) 0 Lexi 3 2 Shirk (S) 2