Q 01

The Government has various tools available to deal with the Market Failure, the few of the tools available to the Government was

Price Profit Regulations

Restrictive Trade policy and practices

Direct Controls or Regulations

Patents and Law of Tort

Subsidy Policy

Tax Policy

Foreign Exchange Policy.

Briefly provide your views on all the above to predominantly sustain for an Economy in Market forces.

Q 02

William Howe must decide whether to start a business renting beach umbrellas at an ocean resort during June, July and August of next summer. He believes he can rent each umbrella to vacationers at $5 a day, and he intends to lease 50 umbrellas for the three- month period for$3,000. To operate this business, he does not have to hire anyone (but himself), and he has no expenses other than the leasing costs and a fee of $3,000 per month to rent the business location. Howe is a college student, and if he did not operate this business, he could earn $4,000 for the Three- month period doing construction work.

(a) If there are 80 days during the summer when beach umbrellas are demanded and Howe rents All 50 of his umbrellas on each of these days, what will be his accounting profit for the Summer?

(b) What will be his economic profit for the summer?

Q 03

A book is to be written by Britney Spears. Batman Books agrees to pay Britney $6 million for the rights to this not- yet- written memoir. According to one leading publisher, BatmanBooks could earn a profit of roughly $1.2 million if it sold 625,000 copies in hardcover. On the other hand, if it sold 375,000 copies, managers would lose about $1.3 million. Publishing executives stated that it was hard to sell more than 500,000 copies of a nonfiction hardcover book, and very exceptional to sell 1 million copies. Were Batman managers taking a substantial risk in publishing this book?