Externalities: Suppose the daily inverse demand curve for gasoline in Portland is given by P = $100 – Q, the MC = 1.5Q, and the EMC = 1.5Q. Q is measured in thousands of gallons of gasoline per day. a. Graph the demand, marginal cost, and external marginal cost functions. b. How many gallons will be consumed per day if gasoline consumers do not consider the EMC of gasoline? c. How many gallons of gasoline will be consumed per day if gasoline consumers consider the EMC.

Externalities: Suppose the daily inverse demand curve for gasoline in Portland is given by P = $100 – Q, the MC = 1.5Q, and the EMC = 1.5Q. Q is measured in thousands of gallons of gasoline per day. a. Graph the demand, marginal cost, and external marginal cost functions. b. How many gallons will be consumed per day if gasoline consumers do not consider the EMC of gasoline? c. How many gallons of gasoline will be consumed per day if gasoline consumers consider the EMC.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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No hand written solution Afirm has an industrial plant that emits pollutants into a town’s lake. The plant’s marginal abatement function is MAC= 200 – 0.5E and damages caused by its emissions are given by MD = 2E where emissions are in kg. per day. What is the socially efficient level of emissions from this plant? Illustrate this in a graph. As an incentive to reduce emissions to the socially efficient level, government offers to pay the firm for each kg. of emissions it abates per day from this plant. What subsidy per kg. should the government offer? If the plant abates to the socially efficient level of emissions, what total subsidy payment would the firm receive? Identify the area in your graph. How much better or worse off would the firm be compared to if it did no abating? Identify the area in your graph. What would be the net benefit to society if we pay the firm to reduce the plant’s emissions to the socially efficient level? Identify this area in your graph.
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You are an industry analyst that specializes in an industry where the market inverse demand is P = 300 - 4Q. The external marginal cost of producing the product is MCExternal = 8Q, and the internal cost is MCInternal = 15Q.Instructions: Enter your responses rounded to the nearest two decimal places.a. What is the socially efficient level of output? unitsb. Given these costs and market demand, how much output would a competitive industry produce? unitsc. Given these costs and market demand, how much output would a monopolist produce? unitsd. Which of the following are actions the government could take to induce firms in this industry to produce the socially efficient level of output.Instructions: In order to receive full credit, you must make a selection for each option. For correct answer(s), click the box once to place a check mark. For incorrect answer(s), click twice to empty the box.check all that apply Pollution taxes Nonrival consumption Pollution permits
Consider the market for fire extinguishers. d. If the external benefit is $10 per extinguisher,describe a government policy that would yield theefficient outcome.
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By imposing a tax on the production of electricity equal to the cost of acid rain, the government will cause electric utilities to internalize the externality. As a consequence, the cost of the acid rain will become a OA. social cost borne by the public, and the demand curve for electricity will shift down. OB. social cost borne by the public, and the demand curve for electricity will shift up. C. private cost borne by the utilities, and the supply curve for electricity will shift down. D. private cost borne by the utilities, and the supply curve for electricity will shift up. Question Viewer
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