Moldavia is a small country that initially does not trade with the rest of the world. Sweetie Pops has a monopoly on the production of caramel corn in Moldavia and charges a single price for bags of this tasty treat. The following information describes Sweetie Pops monopoly status in the caramel corn market in Moldavia:

Demand: Marginal Revenue: Total Cost: Average Total Cost: Marginal Cost:

P = 24 - QD MR = 24 - 2*Q TC = 32 + (1/2)*Q2

ATC = 32 / Q + (1/2)*Q MC = Q

Moldavian health officials release a report confirming that eating caramel corn increases the incidence of diabetes, increasing everyones health insurance costs in Moldavia. They estimate these costs to others of caramel corn consumption to be a constant $8 / bag . Given that Marginal Private Benefit (MPB) is represented by the

Demand curve: MPB = P = 24 QD , which of the following is the Marginal Social Benefit (MSB) curve after the release of this new report: MSB = 24 2*QD

MSB = 16 (1/4)*QD

MSB = 16 2*QD

MSB = 16 QD

As a result of this new report, DWL in the caramel corn market is now _________

$0 $4 $16 $8

Moldavia then enters the world market for caramel corn, where the world price is $8 / bag . Sweetie Pops now maximizes profit by selling ________ of caramel corn at a price of _________, earning economic profits of ____________.

4 bags ; $8 / bag ; -$32

8 bags ; $8 / bag ; $0 8 bags ; $16 / bag ; $64

12 bags ; $12 / bag ; $40

Which of the following INCREASES when Moldavia enters the world market for caramel corn?

I. Domestic Consumer Surplus II. Domestic Producer Surplus III. Total Domestic Externality Costs

IV. Total Domestic Social Surplus

II and IV only I, II, and III only

I and III only

I and II only I and II only

DIAGRAM FOR #21 - #28 p($/bag) 24 12 #2 24 12 3 (bags) DIAGRAM FOR #21 - #28 p($/bag) 24 12 #2 24 12 3 (bags)