P = 16-.25Q MC = 2+.25Q Production creates an external benefit equal to $2 per unit. What is the socially optimal level of output? O 10 24 O 28 32
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![P = 16-.25Q
MC = 2 + .25Q
Production creates an external benefit equal to $2 per unit.
What is the socially optimal level of output?
10
24
28
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- 3. Suppose the EPA wants to reduce pollution to the socially optimal level. Based on the data in the table below, what is the optimal level of pollution? Total cleanup Total Total (tons) Benefit Cost 50 2 85 18 3 115 28 4 140 39 5 160 51 179 63 7 197 76 8 214 90 230 105 10 245 120 11 259 137 12 273 156 13 286 177 14 299 200 15 311 225C.F5 % 16 5 F6 6 PRICE F7 87 63 & 42 36 24 15 0 Refer to Figure 10-5. The socially optimal quantity of outpurus O a. 240 units, since the value to the buyer of the 240th unit is equal to the cost incurred by the seller of the 240th unit. O b. 240 units, since the value to society of the 240th unit is equal to the cost incurred by the seller of the 240th unit. O c. 420 units, since the value to the buyer of the 420th unit is equal to the cost incurred by the seller of the 420th unit. O d. 420 units, since the value to society of the 420th unit is equal to the cost incurred by the seller of the 420th unit. F8 * 8 240 8 QUANTITY F9 ( 9 420 Y JUDUL F10 Supply O Social Value Demand -O- ) F F11 O:+ F12 || PrtSc 000 =Suppose the equation for the demand curve in a market is P=100 – 2Q. Also, suppose the equation for the supply curve in the same market is P=10+3Q. Suppose there is an external cost of $20 associated with the production of each unit of the good. The socially optimal quantity is O 4 units smaller than the market equilibrium quantity. O 22 units greater than the market equilibrium quantity O 14 units smaller than the market equilibrium quantity O 4 units greater than the market equilibrium quantity.
- Consider the table. Number of street lamps Marginal benefit (in $) 123 4 5 6 7 30 26 22 18 14 10 6 Suppose that a small town wants to install street lamps, which are nonrival in consumption and nonexcludable. Each of the 25 people in the town value street lamps according to the given schedule. Street lamps each cost $250 to install. Use this information to answer the questions. What is the socially optimal number of street lamps? Suppose that 20 of the 25 townspeople decide that they will not help pay for street lamps, and will instead enjoy (for free) the street lamps built by the other five people. What is the maximum number of street lamps that will be built by the remaining five people? Suppose the town government decides to build street lamps and pay for the street lamps through taxation. How much should each person be taxed to pay for the optimal number of street lamps if everyone is taxed equally? S I street lamps street lampsQUESTION 10 Suppose that a firm in a competitive market produces electricity by burning coal. The production process creates a negative externality of air pollution. The firm only cares about its private benefits and costs so it will produce a quantity where O the price of electricity it is paid equals the marginal private cost of producing electricity O the marginal value of electricity to society equals the marginal social cost to society the cost of the externality is maximized O the transaction costs of private bargaining are minimizedO Completed 20 out of 20 All of these will lead to market failure EXCEPT if the good O is a public good. creates externalities. is a private good. O is a common property resource. LAPTOP LOGIN USERNAME: stude cer PASSWORD: Brow.
- The many identical residents of some cities love drinking apple juice. The cost of producing a bottle of apple juice is $5, and the competitive suppliers sell it at this price. Each resident has the following willingness to pay for the tasty refreshment: Quantity Willingness to Pay (Dollars) First bottle 10 Second bottle 8 Third bottle 6. Fourth bottle 4 Fifth bottle 2 Further bottlesQuantity Marginal of Total Cost of Pollution Cost Reduction Reduction 1 20 20 50 30 3 110 60 200 90 5 380 180 6 660 280 Use the cost information from the table for a firm creates pollution. If there is a pollution charge of $45 per unit, how much will the firm reduce its pollution? O 1 4 3.Lighthouses are a good that is non-excludable and non-rival (i.e. a Public Good). Given there are currently 2 boats in the area and the marginal cost shown in gray. What is the Socially Optimal level of Lighthouses? 02 49 3 O t 05 Price ($) $80- $70- $60- $50 $40 $30- $20- $10- 0 0 Lighthouse Market 2 3 Lighthouses, QL Marginal Cost 5 MBA MBB 6
- P = 16-.25Q MC = 2 + .25Q Production creates an external benefit equal to $2 per unit. What price and quantity maximize profit in this market? O28, $10 28, $9 O 24, $9 O 24, $105. The effect of negative externalities on the optimal quantityof consumption Consider the market for paper. Suppose that a paper factory dumps toxic waste into a nearby river, creating a negative externality for those living downstream from the factory. Producing an additional ton of paper imposes a constant external cost of $210 per ton. The following graph shows the demand (private value) curve and the supply (private cost) curve for paper. Use the purple points (diamond symbol) to plot the social cost curve when the external cost is $210 per ton. PRICE (Dollars per ton of paper) 700 630 560 490 420 350 280 210 140 70 0 0 ¶¶ 1 O 2 O 3 4 5 QUANTITY (Tons of paper) The market equilibrium quantity is 0 ☐ Supply (Private Cost) 6 Demand (Private Value) 7 Social Cost ? tons of paper, but the socially optimal quantity of paper production is To create an incentive for the firm to produce the socially optimal quantity of paper, the government could impose a of paper. tons. per tonQuestion 1 Price $1.90 1.80 1.70- 1.60 1.50 1.35 35 38 42 Supply (Private+ Public Costs) 58 Supply (Private Costs) Quantity Refer to the figure above. This graph represents the tobacco industry. The socially optimal price and quantity are O $1.90 and 38 units, respectively. O $1.80 and 35 units, respectively. O $1.60 and 42 units, respectively. O $1.35 and 58 units, respectively.
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