Question

The demand for cigarettes is given by P = 100−0.2Q. Cigarettes are manufactured at a constant marginal cost of 10 and sold in a competitive market. If cigarettes generate a marginal external cost of 0.1Q, what is the socially optimal level of cigarettes?

Answer #1

Social optimal level of quantity is the quantity at which MSB = MSC

MSB = Marginal Social benefit and as here there is no positive externality so, MSB = Marginal Private Benefit(MPB).

As, MPB = P => MSB = P = 100 - 0.2Q

MSC = MPC + MEC where MSC = Marginal Social cost, MPC = Marginal Private cost(or Marginal Cost) and MEC = Marginal External cost => MSC = 10 + 0.1Q

So, MSB = MSC => 100 - 0.2Q = 10 + 0.1Q => Q = 300

Hence, **the socially optimal level of cigarettes(Q) =
300**

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?

Question 9: Suppose that in the eastern suburbs of Sydney, the
demand for plants is given by P = 48- Q, and supply is given by P =
0.2Q, where Q represents thousands of plants. Because people enjoy
seeing plants as they pass by others' houses, these plants produce
a positive externality. Suppose that each plant produces a marginal
external benefit equal to $12.
a) What will be the market price and the quantity supplied of
these plants?
b) What...

1. Suppose demand for a product is given by P = 100 - .25 Q and
the Supply curve is P = 8 + 0.25Q. What is the market equilibrium
values for P and Q ?
2. Now suppose the production of this good generates pollution
and the Marginal Social Cost curve (where we add the external cost
to the supply curve) is: MSC = 10 + 0.35Q. What are the efficient
outcome levels for P and Q?

a) A monopoly faces a demand curve given by P = 2,500 - 0.5Q and
has marginal cost constant at $200. What is the profit-maximizing
output level?
b) A monopoly faces a demand curve given by P = 2,500 - 0.5Q and
has marginal cost constant at $100. What is the profit-maximizing
price?

Apple has an activity tracking app. The market demand for the
app is given by P = 124 - 0.1Q. The marginal cost of producing the
app is MC = 1 + 0.1Q.
Apple's profit-maximizing output is _________ units and their
profit-maximizing price is $__________.
Once Apple's patent expires and more competitors enter the
market, total output in the market will rise to ______ units and
the market price will fall to $_________.

The market demand (MPB) and supply (MPC) for vaccinations ( Q)
are given by the following expressions:
MPB ( Q ) = 12 − 1/4 Q
MPC ( Q ) = 1/4 Q
Assume no externalities arise from the production of the private
good. The consumption of the private good does result in a positive
externality in the form of health benefits. Assume that the health
benefits are directly proportional to the amount of consumed. The
total external benefit from...

Suppose that the market demand for physical therapies is given
by the equation P=100-Q. The cost of each therapy is 40.
a. What is the socially optimal number of physical
therapies?
b. Suppose that the price of physical therapies is 40. Suppose
further that patients have insurance that pays for 50% of the price
of physical therapies. How many physical therapies will be
purchased? What is the amount of deadweight loss from insurance
moral hazard?
c. How would your analysis...

A firm in a perfectly competitive industry has patented a new
process for making widgets. The new process lowers the firm’s
average costs, meaning this firm alone can earn real economic
profits in the long run.
(1) If the market price is $300 per widget and the firm’s
marginal cost curve is given by MC=0.5q, how many widgets will the
firm produce?
(2) Suppose a government study has found that the firm’s new
process is polluting the air and estimates...

Aggregating preferences for private and public goods
a. Suppose Johns demand for tacos is P=6-Q and Annas demand is
P=6-2Q. Write down an equation for the social marginal benefit as a
function of Q [i.e. SMB=P=f(Q)] of taco consumption. If the
marginal cost of producing each taco constant at $2 per taco, what
is the socially optimal number of tacos produced and consumed?
b. Now, suppose Johns demand for fighter jets is
P=$10,000,000-(2,000,000*Q) and Annas is
P=$5,000,000-(1,000,000*Q). Derive the social...

Suppose the demand for the good was summarized by the
equations:
P = 100 – 0.5 Q MR = 100 – Q
and that the marginal cost equals the average costs at
$10 per unit.
Calculate the optimum market quantity in a competitive
market. (Hint: Set price equal to marginal cost.)
Calculate the quantity brought to market by the
monopolist, monopolist’s profit and deadweight loss to society from
the monopoly.

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 3 minutes ago

asked 5 minutes ago

asked 6 minutes ago

asked 9 minutes ago

asked 9 minutes ago

asked 9 minutes ago

asked 10 minutes ago

asked 10 minutes ago

asked 10 minutes ago

asked 10 minutes ago

asked 10 minutes ago

asked 11 minutes ago