The demand for cigarettes is given by P 400 0.2Q. Cigarettes are manufactured at a constant marginal cost of 50 and sold in a competitive market. What is the quantity of cigarettes sold in equilibrium? Figure 1 Price 500- 450- 400- 350- 300- 250 200- QPrivate 1750 If cigarettes generate a marginal external cost of MEC = 0.05Q, what is the socially optimal level of cigarettes? QSocially optimal 1400 Using Figure 1 on the right that already shows the market demand curve to illustrate the private and social MC curves. Also, point out the private market quantity, the socially optimal quantity, and the social welfare cost. 1) Using the line drawing tool, illustrate the private marginal cost curve. Label this curve as 'MC'. 2) Using the line drawing tool, illustrate the social marginal cost curve. Label this curve as 'MSC'. (Hint: to plot this correctly you may first want to plot the socially optimal point 'B' in step 4 below) 3) Using the point drawing tool, illustrate the point that represents the profit-maximizing price and quantity. Label this point as 'A' 150 100 50 D 0 400 800 1200 1600 2000 Output

The demand for cigarettes is given by P 400 0.2Q. Cigarettes are manufactured at a constant marginal cost of 50 and sold in a competitive market. What is the quantity of cigarettes sold in equilibrium? Figure 1 Price 500- 450- 400- 350- 300- 250 200- QPrivate 1750 If cigarettes generate a marginal external cost of MEC = 0.05Q, what is the socially optimal level of cigarettes? QSocially optimal 1400 Using Figure 1 on the right that already shows the market demand curve to illustrate the private and social MC curves. Also, point out the private market quantity, the socially optimal quantity, and the social welfare cost. 1) Using the line drawing tool, illustrate the private marginal cost curve. Label this curve as 'MC'. 2) Using the line drawing tool, illustrate the social marginal cost curve. Label this curve as 'MSC'. (Hint: to plot this correctly you may first want to plot the socially optimal point 'B' in step 4 below) 3) Using the point drawing tool, illustrate the point that represents the profit-maximizing price and quantity. Label this point as 'A' 150 100 50 D 0 400 800 1200 1600 2000 Output

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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If the mining of gold yields a negative externality, then the social cost curve lies equilibriúm quantity the supply curve, and the socially optimal quantity is than the Below, greater Above, less Below, less Above, greater A Moving to another question will save this response. «< Question 18 of 25 » Close Window
1. Consider the following picture showing a market in which there is a positive externality: PMC=S Price 00 6 10 3 2 19 1 O 0 100 200 300 400 500 D=WTP SWTP 1,000 1,100 1,200 Quantity At market equilibrium, quantity is At market equilibrium, price is At the market equilibrium, the positive externality creates 2. Consider the graph in the previous example and answer the following questions. At the socially optimal level of production, consumer surplus is External benefits created by the good are in external benefits.
The figure below shows the market for a chemical, of which the production causes certain negative externalities in the form of pollution. Define MCP = marginal private cost, MCS = marginal social cost, D = market demand, P = price, and Q = quantity. 4 10 (a) (b) (c) (d) 100 P MC, ML D If the market is competitive, what is the equilibrium price and quantity? Is this equilibrium outcome socially optimal? In terms of the areas denoted by A, B, and C, what is the deadweight loss to society if the market is competitive? What can the government do to achieve the socially optimal level of pollution?
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BN12.2 (a) Case: The market for dry cleaning is reflected by the demand and supply curves (Q is in thousands): Pa = 5-Q Ps= 2+2Q Producing dry cleaning creates ground water pollution with a constant marginal external cost of 1.2. Question: (a) Sketch a graph that shows the Dsoc, Spriv, Ssoc, Qopt (societal perspective) and DWL in an unregulated market (No need to label the values in the graph)?
2. Suppose that demand for a product is Q = 1200 - 4P and supply is Q = -240 +2 P. Furthermore, suppose that the marginal external damage of this product is $12 per unit. How many more units of this product will the free market produce than is socially optimal? Calculate the deadweight loss associated with the externality.
QUESTION 3 Suppose that the MD=5E and with its current technology, the firm's MS is given by MS₂ = 200-5E. g. Determine the socially optimal level of emissions E.
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…
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Price and cost (dollars per unit) Curve I Curve 2 Quantity (units per day) Which of the following statements is true? When producing D cans of paint, the distance CD represents the marginal cost. O When producing D cans of paint, the distance CD represents the marginal social cost. When producing L cans of paint, the distance AB represents the marginal external cost. Which of the following statements is true? When producing D cans of paint, the distance CD represents the marginal When producing D cans of paint, the distance CD represents the marginal cost. When producing D ca s of paint, the distance AB represents the margina external cost. Curve 2 represents the marginal external cost. None of the above.
The following graph shows the externalities in the market of papers. Apparently, there are negative externalities in the production of paper. The Marginal External Cost is estimated to be a constant $10 for all quantities. MSC S- MPC 110 A 105 C 100 95 D E D= MSB 4.5 5 Tons of Paper per Year (Millions) LExplain how we can get the MSC. AWhich area is the efficiency loss it the market is not regulated! How imuch corrective tax should the government levy to restore etficiency in the market? w. Which area is the total revenue the government receives from the poilution tax? Price, Benefit, and Cost (Dollars)