b) The inverse demand facing a farm sector is denoted by p= 20-x where x is output, and p is output price. The sector's activities also generate positive externalities and the marginal externality benefits is MEB = 10-0.5x. The marginal cost of production is MC = 2+x. Required: i) How much output will be produced and at what consumer price if the industry operates as a monopoly in the output market? ii) What will be the welfare loss in this case? iii) How much will be produced under competition and at what price? iv) What policies can be used to attain the social optimum?
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- The paper industry has the demand and supply curves shown below: Price of paper Quantity demanded Quantity supplied 2 80 40 3 70 50 4 60 60 5 50 70 Suppose that this industry results in extreme externalities. What can be said about its optimal output? Draw the supply and demand curves for paper. Does the supply curve reflect the true social costs of producing the product? If not will a supply curve reflecting the true social costs lies above or below the supply curve you have drawn? What is the equilibrium price of paper? From the point of view of reflecting the true social costs, is this price the correct one, or too low or too high?The paper industry has the demand and supply curves shown below: Price of paper Quantity demanded Quantity supplied 2 80 40 3 70 50 4 60 60 5 50 70 Suppose that this industry results in extreme externalities. What can be said about its optimal output? Draw the supply and demand curves for paper. Does the supply curve reflect the true social costs of producing the product? If not will a supply curve reflecting the true social costs lies above or below the supply curve you have drawn?3) A chemical company can produce Q units of a chemical H, with marginal costs of MC = 9 + Q. and can distribute the chemical at marketing marginal costs of MC = 1. The demand for His given by P = 30-1.5Q. If an external market exists where H can be bought or sold without marketing expenses for $13, how much H should the firm produce? 00 units 4 units 05 units 07 units 10 units
- 2) Suppose that leather is sold in a perfectly competitive industry. The industry short-run supply curve (marginal cost curve) is P = MC = 3Q, where Q is measured in millions of hides per year. The inverse demand for leather hides is given by P = 60-7Q. a. Find the equilibrium market price and quantity sold. b. Suppose that the leather tanning releases chromium and other pollutants into local waterways. The external marginal cost is estimated to be $4 for each hide produced. Calculate the socially optimal level of output and price for the tanning industry.1) a. what is the profit maximizing quantity of the good for The industry (Q1) when it is not forced to consider the externality? The profit-maximizing quanity for the industry (Q1) is: b. what is the profit maximizing quantity for the representative individual firm (q1)?Side 19 A mine owner faces the following marginal cost (MC) function: MC= 100 +15*X Where X is tons of the mineral extracted The mining of the mineral has external costs. The marginal external cost (MEC) has the following function: MEC = 5*X Where X is the tons of the mineral extracted. The (marginal) price curve (PC) has the following function: PC= 600 -5*X Where X is tons of the mineral the bought What is the optimal extraction level in tons? Vælg én svarmulighed O 15 O 18 O 23 O 20
- 3. A steel producing firm has a demand fianction given as P = 30 - Q. the cost function facing the firm is given as and C = 200+ Q2. This firm emit its waste into a river and it cost the fish farmers C = 20 + 2.5Q2 to clean the river.Required i) Market Competition equilibrium price and quantity ii) Socially efficient equilibrium price and quantity iii) Amount of Corrective [Pigovian] tax per unitWhich of these is a negative production externality? An airline manufacturer must hold up production of a plane at great cost due to delays in its global supply chain. A cereal manufacturer suffers losses due to a drought and unexpected increases in market prices of grains that it uses in its cereals. O Consumers complain to the wrong regulators about price gouging in gasoline markets. A producer of lead for batteries that are used nationwide emits noxious gases in its factory town and local people are getting sick. Thch Save1. Suppose the price of product X is reduced from $16.00 to $12.00 and, as a result, the quantity of X demanded increases from 300 to 450. Using the midpoint method, the price elasticity of demand for X in the given price range is: a. 1.4 b. 1.09 c. 0.7 d. 0.4 2. When a production externality has a harmful effect on a bystander at the market equilibrium: a. the social cost of production is lower than the private cost b. the private benefit from consumption is greater than the social cost of production c. society is likely to benefit from production taxes d. none of the above is true 3. Suppose people plant flowering trees near their homes to encourage rare native birds to feed. If people believe that ar increase in native bird populations is valuable, people who plant these trees: a. generate a negative production externality for their neighbours b. generate a positive production externality for their neighbours c. generate a negative consumption externality for their neighbours d.…
- The market for plasticans is perfectly competitive. Market Supply is given by Q=2P and Market Demand is given by Q=403-3P. Each extra unit of plastican produced imposes a negative externality of $8. What is the total surplus at the market quantity? Enter a number only, drop the $ sign. 9,537.4Lecture: Externality - Pigou8. All-Leather is a tanning company located on Lake Michigan in Chicago. Its total cost functionis C(QA) = 125 + 8QA + 5QA2, where QA is leather production per week in thousands of pounds.a) If leather sells for $408 per thousand pounds, how much leather will All-Leather produce?How much profit does All-leather earn?Enjoy is a beverage company located on Lake Michigan near All-Leather in Chicago. Enjoy’sproduction of beverages is negatively affected by water pollution from All-Leather’s productionof leather. Enjoy’s total cost function to produce beverages isC(QE) = 10QE +3QE2 + 3QA2where QE is Enjoy’s weekly production of beverages, in thousandsof gallons and, as above, QA is All-Leather’s weekly production of leather.b) Is this an example of a pecuniary externality or a real externality? Explain.c) What is the extra cost to Enjoy from an additional thousand tons of leather production by AllLeather (i.e., the external marginal cost of an extra unit of QA…Only typed answer You are an industry analyst that specializes in an industry where the market inverse demand is P = 100 - 3Q. The external marginal cost of producing the product is MCExternal = 6Q, and the internal cost is MCInternal = 14Q. Instruction: Round your answers to the nearest two decimal places. a. What is the socially efficient level of output? units b. Given these costs and market demand, how much output would a competitive industry produce? units c. Given these costs and market demand, how much output would a monopolist produce? units d. Which of the following are actions the government could take to induce firms in this industry to produce the socially efficient level of output. Instructions: You may select more than one answer. Click the box with a check mark for the correct answers and click twice to empty the box for the wrong answers. You must click to select or deselect each option in order to receive full credit. Pollution taxes…