There are three firms, A;B; and C that produce electricity. The first two firms have the same per-megawatt cost of production equal to $2, while firm C has a per-megawatt cost of $1. The firms differ, however, in their pollution. Firms A, B, and C produce respectively 1, 2, and 3 cubic feet of carbon monoxide per megawatt produced. A cubic foot of carbon monoxide pollutes the environment, and has a social cost of $2.5. The demand for electricity is represented by the inverse demand function P (Mw) =100 - Mw, where Mw represents the megawatts consumed by the public. Suppose firms are not held accountable for the pollution they produce. What is the competitive equilibrium price and quantity in the market for electricity? (remember that in a competitive market the price will be driven down to marginal cost (since firms in a competitive market earn zero economic profit). How much pollution is there at the competitive equilibrium and what is the social cost of this pollution?
There are three firms, A;B; and C that produce electricity. The first two firms have the same per-megawatt cost of production equal to $2, while firm C has a per-megawatt cost of $1. The firms differ, however, in their pollution. Firms A, B, and C produce respectively 1, 2, and 3 cubic feet of carbon monoxide per megawatt produced. A cubic foot of carbon monoxide pollutes the environment, and has a
What is the competitive
How much pollution is there at the competitive equilibrium and what is the social cost of this pollution?
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
