80 70 60.00 40 MC 30 20 10 0.00 .00 10.00 15.00 20.00 25.00 30.00 35.00 40.00 45
ID: 1116834 • Letter: 8
Question
80 70 60.00 40 MC 30 20 10 0.00 .00 10.00 15.00 20.00 25.00 30.00 35.00 40.00 45.00 50.00 a. What is the free market equilibrium price and quantity of visits? P- s Q-Dvisits per day How do you know? OC. MB= MEC OD. MB= MSC a-visits per day bWhat is the efficient price and quantity of visits? P-s How do you know? B. MSB-MC o C. MB = MSC OG. MB=MC c. Calculate the deadweight loss borne by society when the externality is left uncorrected. DWL What area on the graph represents the DWL area? OA, EGHF B. BEFD OC. AGHC O D. EGH OE. EFHExplanation / Answer
a.
The free market equilibrium condition is ;
MB = MC
Hence the equilibrium price = $20 and quantity = 20 units.
This is measured by the condition;
MB = MC
hence option E is the correct answer.
b.
The efficient market equilibrium condition is;
MSC= MB,
Hence the efficient market equilibrium price will be = $30
the free market equilibrium quantity will be= 15 units.
This is measured by the condition;
Marginal social cost = Marginal benefit (MB)
Hence option C; MB=MSC is the correct answer.
c.
DWL = area of triangle (EGH)
=1/2*B*H
=1/2 *(20-15)(40-20)
=0.5*5*20
DWL =$50
The area on the graph which represents DWL are area ( EGH)
Hence option D is the correct answer.
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