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- Price and cost (dollars per unit) Curve I Curve 2 Quantity (units per day) Which of the following statements is true? When producing D cans of paint, the distance CD represents the marginal cost. O When producing D cans of paint, the distance CD represents the marginal social cost. When producing L cans of paint, the distance AB represents the marginal external cost. Which of the following statements is true? When producing D cans of paint, the distance CD represents the marginal When producing D cans of paint, the distance CD represents the marginal cost. When producing D ca s of paint, the distance AB represents the margina external cost. Curve 2 represents the marginal external cost. None of the above.3) The supply and demand of sugar are given as Q. = 5P, Q = 250- P where Q, is tons supplied per year, P is the price per ton; Qa is tons demanded per year. Because of the pollution associated with production, marginal external costs of 40 are associated with each ton of sugar. Assuming that sugar is sold in a competitive market, a) What is the market price? How many tons of paper will be produced per year at that price? b) What is the efficient output of paper? c) What is the amount of total Pigouvian tax to achieve efficiency? d) What is the amount of total Pigouvian subsidy to achieve efficiency?3) A chemical company can produce Q units of a chemical H, with marginal costs of MC = 9 + Q. and can distribute the chemical at marketing marginal costs of MC = 1. The demand for His given by P = 30-1.5Q. If an external market exists where H can be bought or sold without marketing expenses for $13, how much H should the firm produce? 00 units 4 units 05 units 07 units 10 units
- Figure 5-1 S2 Price P2 Demand Q2 Q Quantity Figure 5-1 shows a market with an externality. The current market equilibrium output of Q1 is not the economically efficient output. The economically efficient output is Q2. DEC tv 80 F3 DOO F4 F5 F6 F7 FB 2$ & 4. 7 6. * C0 5Refer to Figure. Which of the following statements is correct? Price 22 24 22 81 18 16 Social cost (private cost and external cost) Supply (private cost) Demand (private value) 120 160 Quantity a. The private cost of producing the 160th unit of output is $16 b. The social cost of producing the 160th unit of output is $22. c. d. The external cost of producing the 160th unit of output is $6. All of the above are correct.Consider the market for fire extinguishers. d. If the external benefit is $10 per extinguisher,describe a government policy that would yield theefficient outcome.
- By imposing a tax on the production of electricity equal to the cost of acid rain, the government will cause electric utilities to internalize the externality. As a consequence, the cost of the acid rain will become a OA. social cost borne by the public, and the demand curve for electricity will shift down. OB. social cost borne by the public, and the demand curve for electricity will shift up. C. private cost borne by the utilities, and the supply curve for electricity will shift down. D. private cost borne by the utilities, and the supply curve for electricity will shift up. Question Viewer1. A firm's marginal abatement cost function is given by MAC = 200-5E. Suppose that, after adopting new abatement technology, the firms marginal abatement function becomes MAC = 160-4E. Costs are in dollars per tonne and emissions are in tonnes per year. The firm is given 20 tradeable pollution permits (each permit allows it to emit one tonne of pollution) and the current market price per permit is $100. a)Given no change in the permit price how many tonnes of pollution will the firm emit? b)What will be the firms total abatement cost? Will it buy or sell permits and how many? c) What will be the net cost to the firm after trading? What will be the net gain to the firm from adopting the new abatement technology2) Use the figure below to answer the following questions. Price and cost (dollars per tonne of paper) MSC 15 MC 14 13 12 11 D = MSB %3D 30 40 50 60 70 Quantity of paper (tonnes) Figure 1 a) Refer to Figure 1 What is the unregulated equilibrium in the paper market? b) Refer to Figure 1 What is the marginal external cost in this market? c) Refer to Figure 1 What is needed to achieve the efficient output in the market?
- 3. Efficiency in the presence of externalities Roses confer many external benefits on society: the beauty they add to a room or garden, the wonderful aroma they give off, and so on. Therefore, the market equilibrium quantity of roses is not equal to the socially optimal quantity. The following graph shows the demand for roses (their private value), the supply of roses (the private cost of producing them), and the social value of roses (the private value and external benefits). Use the black point (plus symbol) to indicate the market equilibrium quantity. Next, use the purple point (diamond symbol) to indicate the socially optimal quantity.Consider the following graph that shows the marginal abatement cost (MAC) curve for a coal power plan for reducing local air pollution and the marginal damage (MD) curve for those living around the coal power plant. MD (E) MAC (E b. Emissions E-0 E EL E-Max AMax Or Abatement E A-0 What are the total abatement costs at E' (enter your answer with the letters and "+" signs as "a+b+c+d+e+f", without the quotation marks. What are the total abatement costs at E-0 (enter your answer with the letters and "+" signs as as "a+b+c+d+c+f", without the quotation marks. If the property rights were with the coal power plant how much Emissions would we see? (enter one of the following, "E-0", "E", "E1", "E-Max") If the property rights were with the people how much Emissions would we see? (enter one of the following. "E-0", "E", "E1 "E-Max") What is the socially optimal level of emissions (choose from one of the following and enter as written without the quotation marks, "E-0". "E"E1 "E-Max").5. The effect of negative externalities on the optimal quantityof consumption Consider the market for paper. Suppose that a paper factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing an additional ton of paper imposes a constant external cost of $210 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for paper. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $210 per ton. PRICE (Dollars per ton of paper) 700 630 560 490 420 350 280 210 140 70 0 0 ¶¶ 1 O 2 O 3 4 5 QUANTITY (Tons of paper) The market equilibrium quantity is 0 ☐ Supply (Private Cost) 6 Demand (Private Value) 7 Social Cost ? tons of paper, but the socially optimal quantity of paper production is To create an incentive for the firm to produce the socially optimal quantity of paper, the government could impose a of paper. tons. per ton