Consider a Competitive Market in Which the MPB = 180

question 5

Multiple Choice

Consider a competitive market in which the MPB = 180 - 2q and the MSC = q.In this market, however, there is a positive consumption externality of $60 per unit consumed.What government intervention will result in the efficient outcome?

• A)The government implement a tax of $60, levied on consumers.
• B)The government provide a consumption subsidy of $60 per unit, provided to consumers.
• C)The government subsidize producer by $60 per unit.
• D)Both b and C

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Definitions:

Marginal Product

The additional output that results from using one more unit of a particular input, keeping other inputs constant.

Variable Input

Any resource used in production whose quantity can be changed in the short term to increase or decrease output.

Marginal Revenue Product Curve

A graphical representation showing how the additional revenue generated by employing one more unit of a resource varies with the quantity of the resource employed.

Marginal Revenue Product Curve

A graphical representation showing how the revenue generated from selling an additional unit of output changes as more of the output is produced.