The Market for Wheat Is Characterized by the Following Inverse

question 94

Multiple Choice

The market for wheat is characterized by the following inverse demand and supply equations:
P = 540 - 1.5Q
P = MC = 3Q
Where P is the price per metric ton of wheat and Q measures the daily quantity of wheat in metric tons. Because of fertilizer runoff, the external marginal cost is constant at $90 per metric ton of wheat. What is the socially optimal quantity of wheat?

• A) 80 metric tons
• B) 360 metric tons
• C) 100 metric tons
• D) 240 metric tons

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Definitions:

Marginal Benefit

The gain in pleasure or value received from the consumption of one more unit of a good or service.

Public Project

A project typically financed and operated by the government designed to serve the public interest or provide a public good.

Majority Vote

A method of decision-making where the option that receives more than half of the votes wins.

Negative Externalities

Costs experienced by a third party not involved in a transaction, arising from production or consumption of goods and services.