A producer releases chemical waste into a stream. The negative effects of this release are not captured by the market leading to a market failure. Suppose Q is the amount of chemical waste in thou- sands of barrels, and P is the price per barrel($). The marginal social benefit (MSB), marginal private cost (MPC), and marginal external cost (MEC), respectively are MSB = 60 − 0.1Q MPC = 5 + 0.2Q MEC = 0.2Q Calculate the allocative efficient quantity, price, and marginal profit. Note: MSB equals MPB since externality is on production side. Please show answer with explanation, Thank you.
A producer releases chemical waste into a stream. The negative effects of this release are not captured by the market leading to a market failure. Suppose Q is the amount of chemical waste in thou- sands of barrels, and P is the price per barrel($). The marginal social benefit (MSB), marginal private cost (MPC), and marginal external cost (MEC), respectively are MSB = 60 − 0.1Q MPC = 5 + 0.2Q MEC = 0.2Q Calculate the allocative efficient quantity, price, and marginal profit. Note: MSB equals MPB since externality is on production side. Please show answer with explanation, Thank you.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
5. A producer releases chemical waste into a stream. The negative
effects of this release are not captured by the market leading to a
market failure. Suppose Q is the amount of chemical waste in thou-
sands of barrels, and P is the
benefit (MSB), marginal private cost (MPC), and marginal external
cost (MEC), respectively are
MSB = 60 − 0.1Q
MPC = 5 + 0.2Q
MEC = 0.2Q
Calculate the
Note: MSB equals MPB since externality is on production side.
Please show answer with explanation, Thank you.
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