(3) How much deadweight loss is there at the competitive equilibrium? Draw a graph to support your answer. (4) Now suppose there is a monopolist that sells alcohol. How much is produced by the monopolist? Is an unregulated competitive market or an unregulated monopolist better (in terms of social welfare) in this case?

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
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Chapter1: Making Economics Decisions
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8: Consider the market for alcohol. The demand for alcohol is given by the inverse
demand function
p = 1500 – 10Q
The market cost function for firms that sell alcohol is
C"(Q) = 300Q + 10Q²
Alcohol consumption sometimes produces negative externalities, such as drunk driv-
ing, health costs, or violent behavior. The social cost of these externalities is
C°(Q) = 5Q?
%3D
Note that both CP(Q) and C9(Q) are cost functions, not marginal cost functions.
(3) How much deadweight loss is there at the competitive equilibrium? Draw a
graph to support your answer.
(4) Now suppose there is a monopolist that sells alcohol. How much is produced
by the monopolist? Is an unregulated competitive market or an unregulated
monopolist better (in terms of social welfare) in this case?
Transcribed Image Text:8: Consider the market for alcohol. The demand for alcohol is given by the inverse demand function p = 1500 – 10Q The market cost function for firms that sell alcohol is C"(Q) = 300Q + 10Q² Alcohol consumption sometimes produces negative externalities, such as drunk driv- ing, health costs, or violent behavior. The social cost of these externalities is C°(Q) = 5Q? %3D Note that both CP(Q) and C9(Q) are cost functions, not marginal cost functions. (3) How much deadweight loss is there at the competitive equilibrium? Draw a graph to support your answer. (4) Now suppose there is a monopolist that sells alcohol. How much is produced by the monopolist? Is an unregulated competitive market or an unregulated monopolist better (in terms of social welfare) in this case?
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