9. If the provision of national defense were left entirely to the private market, it would be under-provided primarily because: (A) The marginal cost of providing defense to an additional citizen is extremely high, making it unprofitable for private firms. (B) The marginal social benefit of defense is the horizontal sum of all individual demand curves, which private firms cannot calculate. (C) The government possesses an absolute advantage in military technology, creating an insurmountable barrier to entry for private firms. (D) Individual willingness to pay cannot be captured by a market price, as consumers have no incentive to reveal their true valuation of the good.

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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