Mr Barnes Has a Monopoly in the Production of Power $\implies$

question 58

Essay

Mr. Barnes has a monopoly in the production of power in the local market. The demand for Mr. Barnes power is: P = 100 - 0.25q $\implies$ MR(q) = 100 - 0.5q. Mr. Barnes marginal costs are constant at 5. In the generation of power, Mr. Barnes plant emits pollution that causes marginal external damages according to: MEC(q) = 0.05q. If the local government does nothing, how much will Mr. Barnes produce to maximize profits? What is the marginal social cost of his level of output? What price do consumers pay for each unit of Mr. Barnes' output? Is this level of production optimal? Should the local government institute a pollution fee? If so, what is the optimal fee?

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