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 CP (Q) = 300Q + 10Q? 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) = 5Q² Note that both CP(Q) and C9(Q) are cost functions, not marginal cost functions. (1) How much is produced by the firms in the competitive equilibrium? (2) What is the socially best level of production? (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?

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 CP (Q) = 300Q + 10Q? 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) = 5Q² Note that both CP(Q) and C9(Q) are cost functions, not marginal cost functions. (1) How much is produced by the firms in the competitive equilibrium? (2) What is the socially best level of production? (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

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

1. There are 10 producers each with a cost curve C(q) = q². The demand curve is given 2000 10p. Each producer creates a MEC (marginal external cost) of $100 per unit produced. by D = a) What is the competitive equilibrium quantity produced and consumed? b) What is the efficient quantity?
Assume a perfectly competitive market with no externalities. The demand curve is P =52 - 0.06×Qd. The supply curve is P =0.06×Qs. In equilibrium, what is total surplus?
Q)Suppose the inverse demand curve for rides in an amusement park is P=136.3-4.7Q, and the marginal cost for offering a ride is 0. Suppose the customers pay an entrance fee and can take as many rides as they want without paying extra money for each ride. What is the optimal entrance fee? Select one: a. 9288.85 b. 1976.35 c. 3952.70 d. 4644.42
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
Which of the following statements is correct? Select one: a.In models of network goods with positive externalities, no consumption is always an equilibrium. b. The equilibrium in the hotelling model when both firms have the same location is for the firms to set their prices equal to their (constant) marginal cost even if their marginal costs are different. c. If all firms start wiht the same techonology, under both minor and drastic innovations the inovator firm is only one firm producing after the innovation. d. The Schumpeter hypothesis establishes that competitive firms have higher capacity to produce R&D than monopolies.
Suppose that engineers have discovered a new production process for this product which results in a significant positive externality. As a result of the positive externality, for every given output level Marginal Social Value (MSV1) is now higher than consumer’s marginal willingness to pay (also known as the Demand Curve shown as D0 below). Keep in mind that the setting is still that of a monopoly. 1) Please indicate on the graph above, assuming an absence of any government intervention to correct the positive externality and adding any necessary curve(s): The monopoly price P1 and the monopoly quantity Q1 under the condition of the (uncorrected) positive externality. (Also indicate, for comparison purposes, the original monopoly price P0 and monopoly quantity Q0.) The Socially Optimal output, QSO1. The resulting Consumer Surplus CS1, the resulting Producer Surplus PS1, and the size of Dead-Weight Loss DWL1 if there is such a loss. (No need to show the economic profits earned by the…
Lecture: Externality - Pigou8. All-Leather is a tanning company located on Lake Michigan in Chicago. Its total cost functionis C(QA) = 125 + 8QA + 5QA2, where QA is leather production per week in thousands of pounds.a) If leather sells for $408 per thousand pounds, how much leather will All-Leather produce?How much profit does All-leather earn?Enjoy is a beverage company located on Lake Michigan near All-Leather in Chicago. Enjoy’sproduction of beverages is negatively affected by water pollution from All-Leather’s productionof leather. Enjoy’s total cost function to produce beverages isC(QE) = 10QE +3QE2 + 3QA2where QE is Enjoy’s weekly production of beverages, in thousandsof gallons and, as above, QA is All-Leather’s weekly production of leather.b) Is this an example of a pecuniary externality or a real externality? Explain.c) What is the extra cost to Enjoy from an additional thousand tons of leather production by AllLeather (i.e., the external marginal cost of an extra unit of QA…
Please all solve the question
Consider the production and sale of Good B. Suppose that the “Social Value” of each unit of Good B is greater than the “Willingness to Pay” of the individual who consumes that unit. There are NO externalities associated with the production or consumption of Good B, and Good B is sold in a competitive market. Suppose that the “Efficient” level of output for Good B is 400,000 units. Is the market equilibrium level of output greater than 400,000, less than 400,000, or equal to 400,000 ( just circle your answer; you don’t have to explain)?
If a) the government uses a tradable permits program for pollution emissions, b) polluting firms are heterogeneous in terms of their marginal abatement costs (MACs), and c) each firm is initially allocated an equal amount of permits, it must be the case that: Select one: a. Firms with higher marginal abatement costs will pay firms with lower marginal abatement costs to abate more. b. Firms with lower marginal abatement costs will end up with more permits than firms with higher marginal abatement costs after trading. c. All firms will end up abating the same amount of emissions. d. All of the above are true. e. All of the above are false.
Global warming is mainly caused by Greenhouse gas (GHG) (i.e., CO2) emission. Aiming to be carbon neutral by 2060, China starts penalizing the polluting firms by introducing a specific tax to those firms. (Source: https://www.nature.com/articles/d41586-020-02927-9)Suppose you are the owner of a profit-maximizing firm in China that produces goods with carbon emission. The specific tax (with tax rate t) is imposed in proportion to the quantity of your firm’s output (q). The market of your firm’s product is assumed to be perfectly competitive. Assume there is no fixed cost: use a fully labelled diagram to show the effect of the tax on the cost curves, and briefly discuss the movement of the curves. (10 marks) Suppose China government decides to raise the tax rate. Discuss the impact of the rise on your firm's output level with economic models wherever necessary. (20 marks)
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?