Hi! i am super confused on problem 2d. Can someone please show me how to solve f

Question

Hi! i am super confused on problem 2d. Can someone please show me how to solve for that?

Problem 2: 25 points Airplane travel (Q) helps people get around, but also produces a lot of air pollution. The demand for airplane travel is given by The aggregate marginal cost to airlines of producing air travel is The marginal external cost associated with air travel is equal to: MCext 10 a) [5 points] Explain intuitively (but briefly!) how this will cause the quantity of air travel (Q.m) transacted in the free market to differ from the socially efficient amount of air travel to have produced (Q*). b) [5 points] Make a graph of demand, private MC, MCes, and total social MC. Identify Qm and Q* on the horizontal axis

Explanation / Answer

(2.d)

Social marginal cost (SMC) = MC + MCext = 10 + Q + 10 = 20 + Q

Socially efficient outcome is obtained by equating demand with SMC.

50 - Q = 20 + Q

2Q = 50 - 20 = 30

Q = 30/2 = 15

Therefore, Q* = 15

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