A Negative Externality Problem

question 21

Multiple Choice

A Negative Externality Problem

Demand for a good is given by Q = 100 - P. The private marginal cost of production is MCP = 10 + Q. There is a $10 per unit negative production externality in this situation.


-Refer to A Negative Externality Problem.Suppose there are no transactions costs.Also suppose the externality is internalized when the damaged parties offer producers a bribe of $10 per unit to reduce their production.Coasian analysis indicates that social gain in this situation will equal

• A) $0
• B) $800
• C) $1,600
• D) $3,200