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HCM 402 Final || Questions and 100% Verified Answers.
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Briefly explain whether a patent should be used to provide an incentive for investors? If your answer is positive, explain whether there should be any limits or conditions relating to same. correct answers Patents should provide an incentive for inventors, but they should be limited to genuinely ne...

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  • August 16, 2024
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  • 2024/2025
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HCM 402 Final || Questions and 100% Verified Answers.
Briefly explain whether a patent should be used to provide an incentive for investors? If your
answer is positive, explain whether there should be any limits or conditions relating to same.
correct answers Patents should provide an incentive for inventors, but they should be limited to
genuinely new inventions and not extend forever.

Briefly contrast the level that a monopolistically competitive firm will tend to produce at and the
price it will charge with that of a perfectly competitive firm. correct answers A monopolistically
competitive firm will tend to produce a lower quantity at a higher cost and to charge a higher
price than a perfectly competitive firm.

Various factors cause a demand curve to shift. List four different factors. correct answers
Changes in income,changes in population, changes in taste, changes in expectations of future
prices.

Wheat and oats are both used to make cereal and both are grown on the prairies. What would
happen to the supply and demand of oats if the price of wheat were to rise? correct answers An
increase in the price of wheat would reduce the quantity demanded of wheat and decrease the
supply of wheat. Wheat and oats are both substitutes on the demand side, the increase in the
price of wheat increases the demand for oats. On the supply side, the increase in the price of
wheat reduces the supply of oats

Briefly explain the likely results of increasing the extent of environmental regulation. correct
answers As the extent of environment regulation increases, additional expenditures on
environmental protection will probably have increasing marginal costs and decreasing marginal
benefits. This pattern suggests that the flexibility and cost savings of market-oriented
environmental policies will become more important.

Briefly describe the short-run perspective of a firm's total costs. Provide a brief explanation of
what a production technology refers to and explain how production technology relates to a firm's
long-run perspective. correct answers In a short-run perspective, a firm's total costs can be
divided into fixed costs, which a firm must incur before producing any output, and variable costs,
which the firm incurs in the act of producing. A production technology refers to a specific
combination of labor, physical capital and technology that makes up a particular method of
production. In the long run, firms can choose their production technology, and so all costs
become variable costs. In making this choice, firms will try to substitute relatively inexpensive
inputs for relatively expensive inputs where possible, so as to produce at the lowest possible
long-run average cost.

Briefly explain what is meant by the term "fixed costs" and provide three examples of same.
What determines a firm's level of fixed costs? correct answers Fixed costs are expenditures that
must be made before production starts and that do not change regardless of the level of
production. Three examples include equipment or machinery that are used, mortgage or lease of
the building being used, and insurance. The level of fixed costs varies according to the specific
line of business.

, Identify and briefly explain three methods that insurance companies use to off-set the moral
hazard associated with their industry. correct answers 1) they require insurance policyholders to
pay an set amount called a "deductible" out of their own pocket before the insurance coverage
pays anything. 2) they require insurance policyholders to pay a small amount for each service,
called a "copayment", before insurance covers the rest. 3) they use a form of coinsurance that
requires insurance policyholders to pay a percentage of a loss, and the insurance company pays
the remaining cost.

Briefly explain how a natural monopoly arises. correct answers A natural monopoly arises when
economies of scale persist over a large enough range of output that if one firm supplies the entire
market, no second firm can enter without facing a cost disadvantage.

Briefly describe how the free rider problem can be overcome. correct answers The free rider
problem can be overcome through measures to assure that users of the public good pay for it.
One way would be by taxing everyone for the public good. Often social pressure will work to get
everyone to pay for a public good on their own.

Define cross-price elasticity of demand and discuss within the context of complementary goods
and substitute goods. correct answers The cross-price elasticity of demand is an economic
concept that measures the responsiveness in the quantity demanded of one good when the price
for another good changes. This measurement is calculated by taking the percentage change in the
quantity demanded of one good and dividing it by the percentage change in the price of the other
good. If good A is a substitute for good B, like coffee and tea, then a higher price for B will
mean a greater quantity consumed of good A. But if good A is a complement for good B, like
coffee and sugar, then a higher price for good B will mean a lower quantity consumed of good A.

The formal study of economics began when Adam Smith (1723-1790) published his famous
book The Wealth of Nations in 1776. In the first chapter of The Wealth of Nations, Smith
introduces the idea of the division of labor. Define "division of labor" and illustrate with an
example. correct answers Division of labor means the way in which the work required to produce
a good or service is divided into a number of tasks that are performed by different workers.
The example is the number of tasks it takes to make a straight pin can be divided up into each
person doing one of the 18 different tasks. One person cuts the wire, one person sharpens the
wire, one person put the head on the wire, and so on. Instead of one person trying to complete all
18 tasks by themselves the final product will finish quicker with a different person doing a
specific task. The assembly line in a car factory is another great example.

Define social surplus and deadweight loss. correct answers Social surplus is the sum of consumer
surplus and producer surplus. Total surplus is larger at the equilibrium quantity and price than it
will be at any other quantity and price.
Deadweight loss is loss in total surplus that occurs when the economy produces at an inefficient
quantity.

What is the difference between a change in demand and a change in quantity demanded? correct
answers A change in quantity demanded is caused by a change in the price of the product and is

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