Question

You are an industry analyst that specializes in an industry where the market inverse demand is...

You are an industry analyst that specializes in an industry where the market inverse demand is P = 300 - 3Q. The external marginal cost of producing the product is MCExternal = 9Q, and the internal cost is MCInternal = 15Q.


a. What is the socially efficient level of output?

Unit (10 is wrong)


b. Given these costs and market demand, how much output would a competitive industry produce?


Unit

c. Given these costs and market demand, how much output would a monopolist produce?

Unit

d. Which of the following are actions the government could take to induce firms in this industry to produce the socially efficient level of output.

Pollution taxeschecked

Pollution permitschecked

Nonrival consumption

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

(a) Social marginal cost (SMC) = MC(Internal) + MC(External) = 15Q + 9Q = 24Q

Social efficiency is achieved by equating demand with SMC.

300 - 3Q = 24Q

27Q = 300

Q = 11.11 ~ 11

(b) A competitive industry will equate demand with MC(Internal).

300 - 3Q = 15Q

18Q = 300

Q = 16.67 ~ 17

(c) A monopolist will equate Marginal revenue (MR) with MC(Internal).

P = 300 - 3Q

Total revenue (TR) = P x Q = 300Q - 3Q2

MR = dTR/dQ = 300 - 6Q

Equating with MC(Internal),

300 - 6Q = 15Q

21Q = 300

Q = 14.29 ~ 14

(d) Pollution tax and pollution permits are the two actions taken by government in presence of external cost.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You are an industry analyst that specializes in an industry where the market inverse demand is...
You are an industry analyst that specializes in an industry where the market inverse demand is P = 150 - 4Q. The external marginal cost of producing the product is MCExternal = 6Q, and the internal cost is MCInternal = 10Q. Instructions: Enter your responses rounded to the nearest two decimal places. a. What is the socially efficient level of output? units b. Given these costs and market demand, how much output would a competitive industry produce? units c. Given...
Suppose there is a perfectly competitive industry in Dubai, where all the firms are identical. All...
Suppose there is a perfectly competitive industry in Dubai, where all the firms are identical. All the firms in the industry sell their products at 20 AED. The market demand for this product is given by the equation: (Total marks = 5) Q = 25 – 0.25P Furthermore, suppose that a representative firm’s total cost is given by the equation: TC = 50 +4Q + 2Q2 What is the inverse demand function for this market? Calculate the MC function? Calculate...
The paper industry is the major industrial source of water pollution. The inverse demand curve for...
The paper industry is the major industrial source of water pollution. The inverse demand curve for the paper market (which is also the marginal benefit curve) is P = 450 - 2Q where Q is the quantity consumed when the price consumers pay is P. The inverse supply curve (also the marginal private cost curve) for refining is MPC = 30 + 2Q. The marginal external cost is MEC = Q where MEC is the marginal external cost when the...
Suppose the inverse demand for a monopolist’s product is given by P (Q) = 20 –...
Suppose the inverse demand for a monopolist’s product is given by P (Q) = 20 – 3Q    The monopolist can produce output in two plants. The marginal cost of producing in plant 1 is MC1 = 20 + 2Q1 While the marginal cost of producing in plant 2 is MC2 = 10 + 5Q2 How much output should be produced in each plant? What price should be charged?
Suppose the inverse demand for a monopolist’s product is given by P (Q) = 20 –...
Suppose the inverse demand for a monopolist’s product is given by P (Q) = 20 – 3Q                                              (Total marks = 5) The monopolist can produce output in two plants. The marginal cost of producing in plant 1 is MC1 = 20 + 2Q1 While the marginal cost of producing in plant 2 is MC2 = 10 + 5Q2 How much output should be produced in each plant? What price should be charged?
Consider a market where the demand curve is given by P = 200 – 0.2Q and...
Consider a market where the demand curve is given by P = 200 – 0.2Q and the supply curve is given by P = 50 + 0.1Q. Production of this good generates an external cost as measured by the marginal external cost function MEC = 0.1Q. If the government wants to encourage firms to produce at the socially efficient level of output then how large should the per unit tax be?
The paper industry is the major industrial source of water pollution. The inverse demand curve for...
The paper industry is the major industrial source of water pollution. The inverse demand curve for the paper market (which is also the marginal benefit curve) is P = 450 - 2Q where Q is the quantity consumed when the price consumers pay is P. The inverse supply curve (also the marginal private cost curve) for refining is MPC = 30 + 2Q. The marginal external cost is MEC = Q where MEC is the marginal external cost when the...
1. A monopolist operates in an industry where the demand curve is given by Q =...
1. A monopolist operates in an industry where the demand curve is given by Q = 1000 ? 2P. The monopolist’s has constant marginal cost of $8 (and no fixed costs). What is the monopolist’s profit-maximizing price? How much does the monopolist produce? What are its profits?
Four firms compete a la Cournot in a market where inverse demand is given by P...
Four firms compete a la Cournot in a market where inverse demand is given by P = 90 − 2Q. Suppose 3 high-cost firms have constant marginal cost of 20, while one low-cost firm has marginal cost of 10. Find the Nash equilibrium output for each firm where the high-cost firms each produce the same level of output.
Suppose a typical consumer's inverse demand function for bottled water at a resort area where one...
Suppose a typical consumer's inverse demand function for bottled water at a resort area where one firm owns all the rights to a local spring is given by P = 15 - 3Q. The marginal cost for gathering and bottling the water is $3 per gallon. Determine the optimal price and output for each of the following scenarios. You are a single price per unit monopolist. You engage in first-degree price discrimination. You engage in two-part pricing. You engage in...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT