Suppose the External Marginal Cost of Pollution Is MC_external =

question 31

Essay

Suppose the external marginal cost of pollution is MC_external = 5Q and the internal marginal cost is MC_internal = 10Q.Further,assume the inverse demand for the product,Q,is given by P = 90 - Q.
a.What is the socially efficient level of output?
b.How much output would a competitive industry produce?
c.How much output would a monopoly produce?
d.Discuss three ways government can induce firms to produce the socially efficient level of output.

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