The marginal social cost (MSC) of an electricity generating plant that uses coal is estimated by a consulting firm to be MSC=3Q, where Q is the output. The consulting firm also provides an estimate of the supply schedule. The marginal private cost (MPC) is estimated to be MPC=Q. The demand is estimated to be P=60-2Q. Given these estimates,
The marginal social cost (MSC) of an electricity generating plant that uses coal is estimated by a consulting firm to be MSC=3Q, where Q is the output. The consulting firm also provides an estimate of the supply schedule. The marginal private cost (MPC) is estimated to be MPC=Q. The demand is estimated to be P=60-2Q. Given these estimates,
Economics (MindTap Course List)
13th Edition
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Roger A. Arnold
Chapter30: Market Failure: Externalities, Public Goods, And Asymmetric Information
Section: Chapter Questions
Problem 8QP
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- The marginal
social cost (MSC) of an electricity generating plant that uses coal is estimated by a consulting firm to be MSC=3Q, where Q is the output. The consulting firm also provides an estimate of the supply schedule. The marginal private cost (MPC) is estimated to be MPC=Q. The demand is estimated to be P=60-2Q.
- Given these estimates, what is the impact of the externality? How large is the over- or underproduction? What is the socially optimal price? Is there over- or under-pricing?
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