Microeconomics (7th Edition)
7th Edition
ISBN: 9780134737508
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Question
Chapter 5, Problem 5.4.12PA
To determine
The economic problem that the elders were trying to prevent.
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Based on market research, a film production company in Ectenia obtains the following information
about the demand and production costs of its new DVD:1
Demand: P = 1,000 – 10Q
Marginal Revenue: MR = 1,000 – 20Q
Marginal Cost: MC = 100 + 10Q
a. Find the price and quantity that maximize the company’s profit.
b. Find the price and quantity that would maximize social welfare.
c. Use a graph to illustrate the DWL and calculate the dollar value of the DWL.
The following graph represents the market for high-emissions cars. Answer this question assuming that the externality is not internalised.
Which quantity is socially optimal (i.e. what is the efficient quantity)?
What is the deadweight loss generated by the externality?
Explain why environmental pollution is regarded as a source of market failure. Briefly describe two different policies which a government might implement to reduce pollution.
Chapter 5 Solutions
Microeconomics (7th Edition)
Ch. 5 - Prob. 5.1.1RQCh. 5 - Prob. 5.1.2RQCh. 5 - Prob. 5.1.3RQCh. 5 - Prob. 5.1.4RQCh. 5 - Prob. 5.1.5RQCh. 5 - Prob. 5.1.6PACh. 5 - Prob. 5.1.7PACh. 5 - Prob. 5.1.8PACh. 5 - Prob. 5.1.9PACh. 5 - Prob. 5.1.10PA
Ch. 5 - Prob. 5.1.11PACh. 5 - Prob. 5.1.12PACh. 5 - Prob. 5.1.13PACh. 5 - Prob. 5.2.1RQCh. 5 - Prob. 5.2.2RQCh. 5 - Prob. 5.2.3RQCh. 5 - Prob. 5.2.4PACh. 5 - Prob. 5.2.5PACh. 5 - Prob. 5.2.6PACh. 5 - Prob. 5.2.7PACh. 5 - Prob. 5.2.8PACh. 5 - Prob. 5.2.9PACh. 5 - Prob. 5.2.10PACh. 5 - Prob. 5.2.11PACh. 5 - Prob. 5.3.1RQCh. 5 - Prob. 5.3.2RQCh. 5 - Prob. 5.3.3RQCh. 5 - Prob. 5.3.4PACh. 5 - Prob. 5.3.5PACh. 5 - Prob. 5.3.6PACh. 5 - Prob. 5.3.7PACh. 5 - Prob. 5.3.8PACh. 5 - Prob. 5.3.9PACh. 5 - Prob. 5.3.10PACh. 5 - Prob. 5.3.11PACh. 5 - Prob. 5.3.12PACh. 5 - Prob. 5.3.13PACh. 5 - Prob. 5.3.14PACh. 5 - Prob. 5.3.15PACh. 5 - Prob. 5.3.16PACh. 5 - Prob. 5.4.1RQCh. 5 - Prob. 5.4.2RQCh. 5 - Prob. 5.4.3RQCh. 5 - Prob. 5.4.4PACh. 5 - Prob. 5.4.5PACh. 5 - Prob. 5.4.6PACh. 5 - Prob. 5.4.7PACh. 5 - Prob. 5.4.8PACh. 5 - Prob. 5.4.9PACh. 5 - Prob. 5.4.10PACh. 5 - Prob. 5.4.11PACh. 5 - Prob. 5.4.12PACh. 5 - Prob. 5.1CTECh. 5 - Prob. 5.2CTE
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- Consider the town of Evergreen which has only four residents: Ben, James, Mary, and Lydia. The four are trying to determine how many hours to spend cleaning up the public lake. The table below shows each resident's willingness to pay for each hour of cleaning. Hours John James Mary Lydia 1 $30 $50 $40 $10 $25 $40 $36 $9 3 $20 $30 $30 $8 4 $15 $20 $22 $7 $10 $10 $12 $6 6. $5 $0 $0 $5 Suppose the cost to clean the lake is $40 per hour. How many hours should be spent cleaning the lake to maximize total surplus for the residents in Evergreen? O Two O Five Four Three O Sixarrow_forwardWhy is pollution an example of market failure?arrow_forwardThe following graph (see link below) represents the market for high-emission cars. Answer the following questions assuming that the externality is not internalised. - What is the price-quantity combination determined by the market? - What is the private benefit of the last unit traded in the market? - What is the private cost of the last unit traded in the market? - What is the social value of the last unit traded on the market? - What is the social cost of the last unit traded on the market? - Which quantity is socially optimal (what is the effecient quantity)? - What is the deadweight loss generated by the externality?arrow_forward
- The graph illustrates the unregulated market for uranium. When the mines produce uranium, they also create waste which they dump into a river that runs through a small town. The marginal external cost of the dumped waste is equal to the marginal private cost of producing uranium (that is, the marginal social cost of producing the uranium is double the marginal private cost). If no one owns the river and the government levies a pollution tax, what is the tax per ton of uranium that achieves the efficient outcome? D Draw a point to show marginal social cost if production is 240 tons. Draw the MSC curve and label it. Draw an arrow at the efficient quantity that shows the marginal external cost. The tax per ton of uranium that achieves the efficient outcome is $ 2160- 1920- 1680- 1440- 1200- 960- 720- Price and cost (dollars per ton) 480- 240- 0- 0 60 240 S D 120 180 Quantity (tons per week) >>> Draw only the objects specified in the question. 300 Q Qarrow_forwardThe graph illustrates the unregulated market for pesticide. When the factories produce pesticide, they also create waste which they dump into a lake on the outskirts of a small town. The marginal external cost of the dumped waste is equal to the marginal private cost of producing pesticide (that is, the marginal social cost of producing the pesticide is double the marginal private cost). If the pesticide factories own the lake, how much pesticide is produced? If the pesticide factories own the lake, the quantity of pesticide produced is tons a week. 1080- 960- 840- 720- 600- 480- 360- 240- 120- 0+ 0 Price and cost (dollars per ton) 30 S 120 D 60 90 Quantity (tons per week) >>> Draw only the objects specified in the question. Q Q 150arrow_forwardThe following graph shows the demand and supply curves for a good with this type of externality. The dashed drop lines on the graph reflect the market equilibrium price and quantity for this good. Adjust one or both of the curves to reflect the presence of the externality. If the social cost of producing the good is not equal to the private cost, then you should drag the supply curve to reflect the social costs of producing the good; similarly, if the social value of producing the good is not equal to the private value, then you should drag the demand curve to reflect the social value of consuming the good. PRICE (Dollars per unit) I I I I I I QUANTITY (Units) Supply Demand Demand Supply With this type of externality, in the absence of government intervention, the market equilibrium quantity produced will be socially optimal quantity. Which of the following generate the type of externality previously described? Check all that apply. than the A leading electronics manufacturer has…arrow_forward
- Define externality. Also explain negative and positive externality.arrow_forwardSuppose a firm is able to dump toxic chemicals into a river next to its factory, which poisons wildlife and harms the health of nearby residents who have no business with the company. This scenario is characterized by which is an example of an externality, market failure market power; market failure market power; welfare an externality; welfarearrow_forwardDefine the concept of a negative externality and explain the nature of the negative externality in the fishing markets i.e. describe how the self-interested actions of a fishing company might adversely affect third parties without their consent.arrow_forward
- Consider a club promoter who wants to build a night club right next to your apartment building. You and your neighbors will be able to hear the music in your apartments late into the night. In this case, the club‟s owners and attendees may both be quite satisfied with their voluntary exchange, but you have no voice in their market transaction. The effect of market exchange on a third party who is outside or “external” to the exchange is called an externality. What kind of externality do you think this club example may provide?arrow_forwardWhat is an environmental pollutionarrow_forwardLynn owns a tutoring center that supplies SAT and ACT test preparation service for high school students on an hourly basis. Consider the demand, marginal revenue, and marginal cost she faces, shown in the following graph attached below. A. Does Lynn’s business have market power? Briefly explain your answer. B. In order to maximize her profits, how many hours of tutoring should Lynn’s business supply, and at what price? C. What would the socially efficient quantity be in this market and why is the profit-maximizing outcome inefficient?arrow_forward
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