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The good produced emits toxic waste to a nearby river. Eco nists ēs mate thi: unintended consequence costs $4 for each unit produced. Refer to the graph beld a. Show the effect on the graph. b. What is marginal cost at the equilibrium quantity?, c. What is the marginal benefit at the equilibrium quantity? d. What is the marginal social cost at the equilibrium quantity? 5 $7.5 e. What is the optimal quantity?

The good produced emits toxic waste to a nearby river. Eco nists ēs mate thi: unintended consequence costs $4 for each unit produced. Refer to the graph beld a. Show the effect on the graph. b. What is marginal cost at the equilibrium quantity?, c. What is the marginal benefit at the equilibrium quantity? d. What is the marginal social cost at the equilibrium quantity? 5 $7.5 e. What is the optimal quantity?

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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answer the following based on the information provided and the graph
**Title: Analyzing Market Outcomes with External Costs** The production of a certain good emits toxic waste into a nearby river, creating an unintended consequence that costs $4 for each unit produced. The following questions and graph help analyze the effects of this externality on the market. **Graph Description:** - The graph shows a standard supply and demand model. - The vertical axis represents price (P). - The horizontal axis represents quantity (Q). - The downward-sloping line is the demand curve (D). - The upward-sloping line is the supply curve (S). **Questions and Analysis:** a. **Show the effect on the graph.** - To represent the external cost of $4 per unit, shift the supply curve upward by $4. This will show the marginal social cost including the externality. b. **What is the marginal cost at the equilibrium quantity?** - The marginal cost at the equilibrium quantity is the price where the original supply and demand intersect. Approximately $7.5 as noted. c. **What is the marginal benefit at the equilibrium quantity?** - This benefits the same value as the equilibrium price, which is approximately $7.5. d. **What is the marginal social cost at the equilibrium quantity?** - The marginal social cost includes the external $4 cost. Therefore, it is approximately $11.5. e. **What is the optimal quantity?** - The optimal quantity considers the societal cost—lower than equilibrium quantity, approximately 25 units. f. **What is the marginal cost at the optimal quantity?** - At optimal quantity, marginal cost aligns with the social cost at that level on the new supply curve, approximately $8.5. g. **What is the marginal benefit at the optimal quantity?** - This matches the demand curve price at approximately $9. h. **What is the marginal social cost at the optimal quantity?** - At optimal quantity, it includes the external cost at $12. i. **What could the government do to improve the market outcome?** - The government could impose a tax of $4 per unit to internalize the external cost, aligning private cost with social cost. This analysis helps understand the impact of externalities on market equilibrium and suggests interventions that can lead to socially optimal outcomes.
Transcribed Image Text:**Title: Analyzing Market Outcomes with External Costs** The production of a certain good emits toxic waste into a nearby river, creating an unintended consequence that costs $4 for each unit produced. The following questions and graph help analyze the effects of this externality on the market. **Graph Description:** - The graph shows a standard supply and demand model. - The vertical axis represents price (P). - The horizontal axis represents quantity (Q). - The downward-sloping line is the demand curve (D). - The upward-sloping line is the supply curve (S). **Questions and Analysis:** a. **Show the effect on the graph.** - To represent the external cost of $4 per unit, shift the supply curve upward by $4. This will show the marginal social cost including the externality. b. **What is the marginal cost at the equilibrium quantity?** - The marginal cost at the equilibrium quantity is the price where the original supply and demand intersect. Approximately $7.5 as noted. c. **What is the marginal benefit at the equilibrium quantity?** - This benefits the same value as the equilibrium price, which is approximately $7.5. d. **What is the marginal social cost at the equilibrium quantity?** - The marginal social cost includes the external $4 cost. Therefore, it is approximately $11.5. e. **What is the optimal quantity?** - The optimal quantity considers the societal cost—lower than equilibrium quantity, approximately 25 units. f. **What is the marginal cost at the optimal quantity?** - At optimal quantity, marginal cost aligns with the social cost at that level on the new supply curve, approximately $8.5. g. **What is the marginal benefit at the optimal quantity?** - This matches the demand curve price at approximately $9. h. **What is the marginal social cost at the optimal quantity?** - At optimal quantity, it includes the external cost at $12. i. **What could the government do to improve the market outcome?** - The government could impose a tax of $4 per unit to internalize the external cost, aligning private cost with social cost. This analysis helps understand the impact of externalities on market equilibrium and suggests interventions that can lead to socially optimal outcomes.
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