In the long run, efficiency of the Coase Theorem depends on the ability of private bargaining to accommodate the costs of altering resource use as relative prices and opportunity costs change.  True  False

Demand for a good is given by Q = 100 - P. Assume that the market is perfectly competitive, so that the industry supply curve is equal to the private marginal cost of production: MC = 10 + Q. There is also a $10 per unit negative externality. What will the equilibrium quantity be if the firm only pays for its private costs, i.e. does not internalize the externality?

Consider the following table, describing each person's willingness to pay for different levels (units) mosquito control. Mosquito control is a public good for this society. Demand for Mosquito Control Person A Level WTP($) Person B Person C WTP($) WTP($) 10 25 16 15 20 20 14 12 30 15 12 8. 40 10 10 6. 50 5 8 3 The marginal cost of producing one unit of mosquito control is $35 and constant. Assuming there is no Free-Rider issue, the private level of mosquito control supplied would be units. The optimal level of mosquito control however, would be units.

Suppose 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…