The market for Q has inverse demand p = 500-5Q with private marginal cost is MC₂ 50 +5Q. Producing of Q emits pollution that creates external marginal damage equal to MCE = 5Q. A. Find the competitive market price and quantity. B. Find the efficient (optimal) price and quantity. C. Explain why the optimal amount of pollution is not zero. D. Find the welfare cost. E. Find the per unit tax on Q that would achieve the efficient output. F. Suppose the market was controlled by a monopoly producer of Q (instead of competitive firms). Would social welfare greater under monopoly or under competition? Explain.

The market for Q has inverse demand p = 500-5Q with private marginal cost is MC₂ 50 +5Q. Producing of Q emits pollution that creates external marginal damage equal to MCE = 5Q. A. Find the competitive market price and quantity. B. Find the efficient (optimal) price and quantity. C. Explain why the optimal amount of pollution is not zero. D. Find the welfare cost. E. Find the per unit tax on Q that would achieve the efficient output. F. Suppose the market was controlled by a monopoly producer of Q (instead of competitive firms). Would social welfare greater under monopoly or under competition? Explain.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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