Consider the market for halibut. Suppose the social marginal benefit of halibut consumption (the demand curve), can be represented by 5 – (1/10)Q, where P is the price of halibut and Q is the quantity of halibut. Suppose also that the private marginal cost of producing (fishing) halibut is 1+(1/30)*Q and the social marginal cost is 1+(1/10)Q. a. Why does social marginal cost of halibut production differ from private marginal cost? b. Draw a graph with the social marginal benefit, social marginal cost, and private marginal cost curves. Label the unregulated market equilibrium, the socially efficient quantity and price, and the deadweight loss under the unregulated market equilibrium. c. What is the unregulated market equilibrium quantity? What is the socially efficient equilibrium quantity? What is the size of the deadweight loss in the unregulated market equilibrium?
Consider the market for halibut. Suppose the social marginal benefit of halibut consumption (the demand curve), can be represented by 5 – (1/10)Q, where P is the price of halibut and Q is the quantity of halibut. Suppose also that the private marginal cost of producing (fishing) halibut is 1+(1/30)*Q and the social marginal cost is 1+(1/10)Q. a. Why does social marginal cost of halibut production differ from private marginal cost? b. Draw a graph with the social marginal benefit, social marginal cost, and private marginal cost curves. Label the unregulated market equilibrium, the socially efficient quantity and price, and the deadweight loss under the unregulated market equilibrium. c. What is the unregulated market equilibrium quantity? What is the socially efficient equilibrium quantity? What is the size of the deadweight loss in the unregulated market equilibrium?
Chapter1: Making Economics Decisions
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