8. According to the Coase Theorem, private parties can solve the problem of externalities without government intervention if: (A) Transaction costs are low and property rights are clearly defined. (B) The government imposes a Pigovian tax equal to the marginal external cost. (C) The polluter is legally required to pay for all damages regardless of cost. (D) The number of affected parties is large enough to ensure a fair outcome.

2. Assume that the medical screening industry is perfectly competitive. Consider a typical firm that is making short-run losses. Suppose the medical screening industry runs an effective advertising campaign which convinces many people that yearly CT scans are critical for good health. How will this affect a typical firm that remains in the industry? (A) The firm's supply curve shifts right and its marginal revenue curve shifts upwards as the market price rises and ultimately the firm starts making profits. (B) The firm's marginal revenue curve and average cost curve shift upwards in response to the increase in market price and advertising expenditure. The firm increases output until it starts breaking even. (C) The marginal revenue curve shifts upwards, the firm's output increases along its marginal cost curve, it expands production and eventually starts making profits. (D) The marginal revenue curve shifts upwards, the firm's output increases along its marginal cost curve, it expands production until it breaks even.

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