The Following Table Shows the Marginal Private Cost (MPC) and the Marginal

question 114

Essay

The following table shows the marginal private cost (MPC) and the marginal social cost (MSC) of a chemical factory. $$\begin{array} { c c c } \hline \text { Tons of Chemicals } & \text { MPC } & \text { MSC } \\\hline 1 & 100 & 120 \\2 & 110 & 130 \\3 & 120 & 140 \\4 & 130 & 150 \\5 & 140 & 160 \\\hline\end{array}$$ Answer the following questions:
(1) What is the marginal cost of the factory's externality? Is it constant at all quantities?
(2) If the factory is a perfectly competitive firm and is not required by the government to internalize its external cost, how many tons should the factory produce, given that the market price of a ton of chemicals is $130?
(3) If the factory is a perfectly competitive firm and is required by the government to internalize its external cost, how many tons should the factory produce, given that the market price of a ton of chemicals is $130?
(4) Draw a graph illustrating your answers.

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Definitions:

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