Draw the following situations as a graph format: 1. The graph will have the price (P) on the y-axis and quantity (Q) on the x-axis. The demand or marginal private benefit curve (PMB) will be the same as the social marginal benefit (SMB) curve and it is sloping downwards. The PMC will be lower than the SMC and upward sloping. The social optimal is where SMC and PMB meet and at this point, the P is higher and Q is lower than the P where PMC and PMB meet. Since there is no restriction, the firm produces where PMC and PMB meet. 2. The graph will have the price (P) on the y-axis and quantity (Q) on the x-axis. The Deadweight Loss (DWL) is captured by the triangular area whose height is the gap between the social output and the firm’s output and base is the external cost (point on SMC where the firm is producing minus the point where PMC=demand).
Draw the following situations as a graph format:
1. The graph will have the
2. The graph will have the price (P) on the y-axis and quantity (Q) on the x-axis. The Deadweight Loss (DWL) is captured by the triangular area whose height is the gap between the social output and the firm’s output and base is the external cost (point on SMC where the firm is producing minus the point where PMC=demand).
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