Answered: 5. (External Costs) Use the data in the…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

5. (External Costs) Use the data in the table below to answer the following questions. a. What is the marginal external cost of
production? b. What level is produced if there is no regulation
of the externality? c. What level should be produced to achieve economic
efficiency? d. Calculate the dollar value of the net gain to society
from correcting the externality.

Marginal
Private Benefit
(demond) ($)
Marginal
Private Cou
Marginal
Social
Cost (S)
Quantity
(wupply) ($)
1
10
2
4
2
5
3
6
4
7.
10
11
10
12
10
11
13

Expert Solution

Step 1

We know that,

$M a r g i n a l S o c i a l \cos t = m a r g i n a l p r i v a t e \cos t + m a r g i n a l e x t e r n a l \cos t$

Using this equation we can calculate for marginal external cost since we are given the marginal social cost and the marginal private cost.

Thus, the table will look as follows:

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