Mr Barnes Operates a Power Plant in the Local Market

question 74

Essay

Mr. Barnes operates a power plant in the local market. Mr. Barnes' marginal cost function is: Mr. Barnes can sell all the output he produces for $9 per unit. In generating power, Mr. Barnes also emits pollution that causes damage to the local community. The marginal external cost of his production is: What level of output will Mr. Barnes choose to maximize profits? Is this level of production efficient? If not, what could the local community do to ensure efficiency?

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Definitions:

Unearned Revenues

A liability recorded for cash received before services are performed.

Income Statement

A financial statement that shows a company's revenues and expenses, and ultimately its net income or loss, over a specific period.

Current Maturities

The portion of long-term debt or loan obligations that is due to be paid within the coming fiscal year.

Long-term Debt

Loans or financial obligations that are due for repayment beyond the next 12 months or the current business cycle.