Question

Old cellular phones generate a negative externality when they are consumed because they lead to environmental damage when they are discarded. Each phone creates a marginal external cost (MEC) of $25 when it is thrown away. Suppose the inverse market demand and supply curve for cell phones are given by:

Inverse demand: P = 300 - 3Q

Inverse supply: P = 200 + Q

a) Calculate the competitive market equilibrium price and
quantity

b) Calculate the allocatively efficient quantity of cell
phones

c) In a clear and well-labeled graph, show the total environmental
cost (TEC) at both the competitive market output and allocatively
efficient output level

d) Calculate the change in welfare that society would realize if
output shifted from the competitive to the allocatively efficient
level

e) Explain how a product tax on cell phones could be used to solve
the externality problem.

Answer #1

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 that our local power station burns coal to generate
electricity. The demand
and supply functions for electricity are given by P = 12−0.5Q
and P = 2+0.5Q, respectively.
However, for each unit of electricity generated, there is an
externality. Suppose MEC = 1.
(a) Find the free market equilibrium and illustrate it
geometrically.
(b) Calculate the efficient (i.e. socially optimal) level of
production.
(c) Calculate the deadweight loss.

Q3) Assume that the manufacturing of cellular phones is a
perfectly competitive industry. The market demand for cellular
phones is described by a linear demand function:
QD=(6000-50P)/9. There are 50 manufacturers of cellular
phones. Each manufacturer has the same production costs. These are
described by long-run total cost functions of TC(q) = 100
+ q2 + 10q.
1) Show that a firm in this industry maximizes profit by
producing q = (P-10)/2
2)Derive the industry supply curve and show that...

1. Suppose a particular pesticide is sold in an unregulated
perfectly competitive market, where the inverse market supply curve
is P = 1 + 0.01QS and the inverse market demand curve is
P = 8– 0.04QD where the quantity is in millions of
gallons per year and the price is in dollars per gallon. Suppose
that the external marginal cost of pesticide depends on the
quantity of pesticide consumed as follows: EMC =
0.01Q
a. What is the market...

The market for paper in a particular region in the United States
is characterized by the following demand and supply curves:
Upper Q Subscript Upper D Baseline equals 155 comma 000 minus 2
comma 000 Upper PQD=155,000−2,000P
and
Upper Q Subscript Upper S Baseline equals 50 comma 000 plus 2
comma 000 Upper PQS=50,000+2,000P
where
QD
is the quantity demanded in 100-pound lots,
QS
is the quantity supplied in 100-pound lots, and P is the price
per 100-pound lot. Currently...

1. Compared with a perfectively competitive market a monopoly is
inefficient because
a. it raises the market price above marginal cost and produces a
smaller output.
b. it produces a greater output but charges a lower price.
c. it produces the same quantity while charging a higher
price.
d. all surplus goes to the producer.
e. it leads to a smaller producer surplus but greater consumer
surplus.
2. The demand curve of a monopolist typically...

(a)Explain incidence of direct and indirect taxation using
appropriate diagrams. (b)Suppose that the demand and supply for a
product sold in a perfectly competitive market are given by the
equations:
Qd= 130 – 2P
Qs= -50 + P
(i) What are the perfectly competitive equilibrium price and
quantity for this product?
(ii) Suppose the industry that produces this product causes
environmental damage valued by the government at 0.5 per unit of
output. Determine the socially optimal price and output level...

Consider a publicly available technology of producing a good
that is characterized by the variable cost function VC (Q) =
(1/2)Q2 and fixed costs FC = 2 for a firm that operates
the technology. In the short run, fixed costs are unavoidable. In
the long run, fixed costs are avoidable and it is free for any firm
outside of the market to enter, should it want to. In the short
run, the set of firms in the market is fixed....

In economics, the term
“scarcity”meansthere .is a shortage of the factors ofproductionis equilibrium in themarketare unlimited wants and only limitedresourcesare limited wants and unlimitedresourcesA country has an absolute advantage in producing cars ifthat
country .has a lower opportunity cost of producing cars than any
othercountrycan produce more cars in a given amount of time than any
othercountryhas a higher opportunity cost of producing cars than any
othercountrycharges the highest price forcarsDuring bad economic times, many people lose their jobs. How
would that...

Closed book and closed notes.
3. Basic Calculators are permitted.
4. Read all instructions and questions carefully.
5. Show all your work.
6. Please place your Coquitlam College Identification Card
face up and visible on your desk.
7. Electronic devices including cellular phones must be turned
off and put away during the exam.
8. Any student who has a cell phone or other unauthorized
electronic device (i.e. laptop, and et cetera.) on their person or
around their desk during this...

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