The Demand Curve and Supply Curve for a Good Are

question 52

Essay

The demand curve and supply curve for a good are given by Q^D = 100 - 5P and Q^S = 1.25P - 2.5. Suppose the production of this good generates a negative externality, where the external marginal cost is constant at $2. To achieve the socially optimal output level, the government wants to implement a quota. What size should the quota be?

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Definitions:

Departmental Overhead Rate

A rate used to allocate overhead costs to specific departments, based on criteria such as department size or usage of overhead resources.

Machine Hours

A measure of the total operating time of machinery within a certain period.

Departmental Overhead Rates

The allocation of indirect costs to specific departments based on their respective shares of direct costs or activity drivers.

Assembly Rate

The speed or rate at which a product is assembled, which can affect production efficiency and output.