You are an industry analyst that specializes in an industry where the market inv

Question

You are an industry analyst that specializes in an industry where the market inverse demand is P = 250 - 4Q. The external marginal cost of producing the product is MCExternal = 7Q, and the internal cost is MCInternal = 13Q.

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

units


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.

Instructions: You may select more than one answer. Click the box with a check mark for the correct answers and click twice to empty the box for the wrong answers. You must click to select or deselect each option in order to receive full credit.

Explanation / Answer

a). P = 250 -4Q

     MC = 7Q+13Q

Equilibrium P = MC

250 -4Q =20Q

Q = 250/24

=10.41

b). Competitive equilibrium without considering the external cost

250

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