Externalities Mark owns a butchery. His marginal cost of selling meat is MC = 0.35Q, where Q is the pounds of meat he sells. Mark is in a competitive market and can sell all the meat he wishes for $7 per pound. However, the smell from the butchery bothers the customers of George, the owner of the coffee shop next door. Assume that every pound of meat costs George $1.4 worth of lost business.If Mark focuses on maximizing his profit, how much would he sell?At the profit-maximizing quantity from part a, does selling the last pound of meat benefit the society. Calculate the social marginal cost and compare it to the marginal benefit. Note that here “society” refers to Mark and George.What is the socially optimal quantity of meat sold?

Market equilibrium is where the marginal revenue equals the marginal cost. Social Equilibrium is…

Answered: Externalities Mark owns a butchery. His…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Externalities Mark owns a butchery. His marginal cost of selling meat is MC = 0.35Q, where Q is the pounds of meat he sells. Mark is in a competitive market and can sell all the meat he wishes for $7 per pound. However, the smell from the butchery bothers the customers of George, the owner of the coffee shop next door. Assume that every pound of meat costs George $1.4 worth of lost business.

If Mark focuses on maximizing his profit, how much would he sell?
At the profit-maximizing quantity from part a, does selling the last pound of meat benefit the society. Calculate the social marginal cost and compare it to the marginal benefit. Note that here “society” refers to Mark and George.
What is the socially optimal quantity of meat sold?

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3) If Mark buys George’s coffee shop, what would his profit-maximizing quantity of meat sales be?

4) Describe a Coase theorem based solution to the problem of inefficiency in this market, and explain how the 3 conditions of Coase theorem apply in your suggested solution.

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