Assume that a factory that produces concrete emits CO2 into the atmosphere. The figure below illustrates the demand for concrete, the company's supply curve / private marginal cost curve (MCp) and society's marginal cost curve (MCs = MCp+MCe) where MCe is the external effect. P,C P²50 p¹=45 P"=30 MC, MC,+MC₂ MC₂ MC₂ Q¹ = 100 Q'=150 a) Start from the figure above and show how large the optimal production of concrete is in an unregulated market. What condition must be met in this equilibrium? b) Now assume that emissions grow faster than output (see picture). If the state taxes CO2 emissions into the atmosphere, what will be the marginal external cost (MEC) at Q^*? c) What will be the socio-economic welfare loss at Q^*? d) What will be the social optimal level for concrete production when we consider the negative external effect that production gives rise to? Which condition must be met? e) Is this a market failure and if so why?

Assume that a factory that produces concrete emits CO2 into the atmosphere. The figure below illustrates the demand for concrete, the company's supply curve / private marginal cost curve (MCp) and society's marginal cost curve (MCs = MCp+MCe) where MCe is the external effect. P,C P²50 p¹=45 P"=30 MC, MC,+MC₂ MC₂ MC₂ Q¹ = 100 Q'=150 a) Start from the figure above and show how large the optimal production of concrete is in an unregulated market. What condition must be met in this equilibrium? b) Now assume that emissions grow faster than output (see picture). If the state taxes CO2 emissions into the atmosphere, what will be the marginal external cost (MEC) at Q^? c) What will be the socio-economic welfare loss at Q^? d) What will be the social optimal level for concrete production when we consider the negative external effect that production gives rise to? Which condition must be met? e) Is this a market failure and if so why?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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