A competitive refining industry releases one unit of waste into the atmosphere for each unit of refined product. The inverse demand function for the refined product is pd = 20 q, which represents the marginal benefit curve where q is the quantity consumed when the consumers pay price pd. The inverse supply curve for refining is MPC = 2 + q, which represents the marginal private cost curve when the industry produces q units. The marginal external cost curve is MEC = 0:5q, where MEC is the marginal external cost when the industry releases q units of waste. Marginal social cost is given by MSC = MPC + MEC. a. What are the equilibrium price and quantity for the refined product when there is no correction for the externality? b. How much of the chemical should the market supply at the social optimum? c. How large is the deadweight loss from the externality?

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question

A competitive refining industry releases one unit of waste into the atmosphere for each unit of refined product. The inverse demand function for the refined product is pd = 20 q, which represents the marginal benefit curve where q is the quantity consumed when the consumers pay price pd. The inverse supply curve for refining is MPC = 2 + q, which represents the marginal private cost curve when the industry produces q units. The marginal external cost curve is MEC = 0:5q, where MEC is the marginal external cost when the industry releases q units of waste. Marginal social cost is given by MSC = MPC + MEC.

a. What are the equilibrium price and quantity for the refined product when there is no correction for the externality?

b. How much of the chemical should the market supply at the social optimum?

c. How large is the deadweight loss from the externality?

d. Suppose that the government imposes an emission fee of T per unit of emissions. How large must the emission fee be if the market is to produce the socially ancient amount of the refined product?

 

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 5 steps with 14 images

Blurred answer
Knowledge Booster
Vertical Restraints
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education