Suppose a factory produces a chemical product which damages agricultural production of farms around the factory. The private marginal benefit PMB=36-3Q and the private marginal cost associated with its production is PMC=4Q+8 a. Draw PMB and PMC on a graph. b. What will be the free market production? c. Suppose that the marginal external damage of this product is $7 per unit. Find the socially optimal production level. Is it lower or higher than free market production?
Suppose a factory produces a chemical product which damages agricultural production of farms around the factory. The private marginal benefit PMB=36-3Q and the private marginal cost associated with its production is PMC=4Q+8 a. Draw PMB and PMC on a graph. b. What will be the free market production? c. Suppose that the marginal external damage of this product is $7 per unit. Find the socially optimal production level. Is it lower or higher than free market production?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Suppose a factory produces a chemical product which damages agricultural
production of farms around the factory. The private marginal benefit PMB=36-3Q and the private marginal cost associated with its production is PMC=4Q+8
a. Draw PMB and PMC on a graph.
b. What will be the free market production?
c. Suppose that the marginal external damage of this product is $7 per unit. Find the socially optimal production level. Is it lower or higher than free market production?
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