Suppose that the market for a certain good has an inverse demand of P = 200 − Q. The aggregate private marginal cost for the firms that produce the good is MC = 20 + Q. However, production of the good also creates pollution with an external marginal cost of EMC = 10 + Q/2. a) If this is a perfectly competitive market with no regulation, what is the equilibrium price and quantity produced? b) Suppose instead that the market is a monopoly. Calculate the profit-maximizing price and quantity. c) Determine the socially efficient price and quantity for the good.

Suppose that the market for a certain good has an inverse demand of P = 200 − Q. The aggregate private marginal cost for the firms that produce the good is MC = 20 + Q. However, production of the good also creates pollution with an external marginal cost of EMC = 10 + Q/2. a) If this is a perfectly competitive market with no regulation, what is the equilibrium price and quantity produced? b) Suppose instead that the market is a monopoly. Calculate the profit-maximizing price and quantity. c) Determine the socially efficient price and quantity for the good.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter19: Externalities And Public Goods

Section: Chapter Questions

Problem 19.5P

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