Answered: Consider the following model of a…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Consider the following model of a hypothetical market for MSW management services:

MPB = 25 − 2Q

MPC = 4 + Q

MEC = 0.5Q,

where Q is the number of trash containers per household per month.

A. Quantitatively determine the effect of the resource misallocation due to:

the presence of the negative externality, and

the use of a flat fee pricing system in the presence of a negative externality.

B. Determine the dollar value of a waste-end charge that would restore efficiency to this market. Explain your answer intuitively.

Definition Definition Degree to which financial markets incorporate all available information into the prices of assets. In a more efficient market, the prices reflect the available information more than that in a weak efficient market. It is difficult for investors to outperform the market in a strong efficient market. This is because all the available information is already discounted in the asset's price. However, in a weak-form efficiency, the market does not reflect all information in the asset's price. As a result, it becomes easier to generate better returns in a weak form or an inefficient market.

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