ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Transcribed Image Text:Suppose that the private marginal cost for a product's (corn) consumption is given by
the MB curve (or MB = 360 – 4Q) and the private marginal cost associated with its
production is given by the MPC curve (or MC = 6Q). The diagram is presented below.
P (S)
360
MPC
320
280
240
216
200
160
120
80
40
MB
10
Q per year
20
30
40
50
60
70
80
90
1. If the producers of rice wants to maximize profit up to what level of output will it
produce and at what price? What condition should be met in order for the firms to
efficiently produce this level of output?
2. Suppose that externalities exist in the market for corn (e.g., pollution and wastes
dumped in nearby water reservoir producing ice cream) and this has inflicted
damage to nearby community. The associated marginal damage was estimated as
MD = 20. Sketch, in the same diagram, the MD (marginal damage) associated
with this good's production. Explain why MD curve is upward sloping.
3. Given the damage inflicted by the negative externality created by this market,
sketch in the same diagram the MSC (marginal social cost). Explain how the MSC
curve is derived. What does the MSC represent?
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- With the existence of negative externality, determine the socially efficient level of output and
price . - When negative externality exists, the firms loose profits. Calculate the size of the firms’ loss.) On the other hand, the community’s gain from the social efficient allocation level. Interpret the results.
- Determine the net gain (or loss) to the society.
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- With the existence of negative externality, determine the socially efficient level of output and
price . - When negative externality exists, the firms loose profits. Calculate the size of the firms’ loss.) On the other hand, the community’s gain from the social efficient allocation level. Interpret the results.
- Determine the net gain (or loss) to the society.
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- Explain why externalities pose a problem for the utilitarian/invisible hand argument in favor of free market/laissez-faire capitalism. Be precise and thorough and use your own wordsarrow_forwardSuppose that engineers have discovered a new production process for this product which results in a significant positive externality. As a result of the positive externality, for every given output level Marginal Social Value (MSV1) is now higher than consumer’s marginal willingness to pay (also known as the Demand Curve shown as D0 below). Keep in mind that the setting is still that of a monopoly. 1) Please indicate on the graph above, assuming an absence of any government intervention to correct the positive externality and adding any necessary curve(s): The monopoly price P1 and the monopoly quantity Q1 under the condition of the (uncorrected) positive externality. (Also indicate, for comparison purposes, the original monopoly price P0 and monopoly quantity Q0.) The Socially Optimal output, QSO1. The resulting Consumer Surplus CS1, the resulting Producer Surplus PS1, and the size of Dead-Weight Loss DWL1 if there is such a loss. (No need to show the economic profits earned by the…arrow_forwardWhy the presence of the product variety externality does imply that there is too little entry of new firms in the market?arrow_forward
- #2. You have two periods. I've given you an externality with MEC=0.05q1. So, MB1=8-0.4q1 MB2=8-0.4q2. So, the externality is a cost realized in period 2 but caused by period 1's production choice. Q1 belongs to the first period, and Q2 is the second.arrow_forwardCompared to ideal economic efficiency, when the production of a good generates external benefits, competitive markets will likely result in an output that is too A) large and a price that is too high. B) large and a price that is too low. C) small and a price that is too high. D) small and a price that is too low.arrow_forward2. Refer to Graph 10-1. Assume the externality is not internalised. What is the loss to society from the last unit of the good produced by the market? A. P3-P2 B. P2-P1 C. P3-P1 D. ZeroGraph 10-1 Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.arrow_forward
- Suppose the given functions describe the market for artisanal single-batch maple syrup. If climate change would cause this market to collapse entirely*, what is the total market benefit of avoiding that environ- mental catastrophe? 7.5 2 Ps= 5+Qs *Extraction of syrup requires below-freezing nights and relatively warm days in the winter PD = 100 QDarrow_forwardThree neighboring towns – Marshland, Dampland, and Wetland – all border the same lake. The lake frequently floods causing damage to property in all three towns. Each town would benefit from flood mitigation, but the level of benefits differs. With Z representing the level of mitigation: for Marshland, MB = 3 – Z for Dampland, MB = 4 – 2Z for Wetland, MB = 11- Z The marginal cost of flood mitigation is MC = 2 + 12Z Questions: ***Please Note*** Previous Expert Calculated: Z = 16/3 as the Solution to (a) Math Solver Calculates: Z = 1 ***Please Resolve*** (a) What is the socially optimal level of Z? (b) What would each individual town be willing to pay for this level of flood mitigation? (c) The representative from Wetland proposes that each town pay an equal share for the optimal level of flood mitigation. Would…arrow_forward
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