Suppose You Are a Public Official Responsible for Setting a Retail

question 22

Essay

Suppose you are a public official responsible for setting a retail disposal charge on antifreeze. Estimated marginal benefit and cost functions for antifreeze are as follows:
MPB = 10.0 - 0.5Q MPC = MSC = 1.0 + 0.4Q
MSB = 10.0 - 1.1Q,
where MPB, MSB, and MPC are measured in dollars per gallon, and Q is in millions of gallons.
a. Identify the Marginal External Benefit (MEB) function, and briefly explain what this function is measuring.
b. In the absence of government intervention, find the equilibrium price (P_C) and Quantity (Q_C) being exchanged in the antifreeze market?
c. Determine the retail disposal charge that will produce an efficient allocation of antifreeze.

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Definitions:

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Control Number

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