Use the data in the table below to answer the following questions: a. What is th
ID: 1196220 • Letter: U
Question
Use the data in the table below to answer the following questions:
a. What is the marginal external cost per unit of production?
b. What level is produced if there is no regulation of the externality?
c. What level should be produced to achieve economic efficiency?
d. Calculate the dollar value of the net gain to society from correcting the externality.
Marginal Private Marginal Private Marginal
Quantity Benefit (Demand) Cost (Supply) Social Cost
0 — $ 0 $ 0
1 $10 2 4
2 9 3 5
3 8 4 6
4 7 5 7
5 6 6 8
6 5 7 9
7 4 8 10
8 3 9 11
9 2 10 12
10 1 11 13
Explanation / Answer
a)
MEC = MSC-MPC
Thus, the value of MEC will be:
Q
MEC=MSC-MPC
0
0
1
2
2
2
3
2
4
2
5
2
6
2
7
2
8
2
9
2
10
2
b)
In the absence of regulation, MPC=MPB
This occurs at the point when MPC=MPB=6 at Q=6 units
c)
In the presence of externality, MSC=MPB
This occurs at the point when MPC=MPB=7 at Q=4 units
d)
Dollar value from correcting the externality is $1
Q
MEC=MSC-MPC
0
0
1
2
2
2
3
2
4
2
5
2
6
2
7
2
8
2
9
2
10
2
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