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 = 2Q. 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?

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 = 2Q. 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?

Microeconomics

13th Edition

ISBN:9781337617406

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter17: Market Failure: Externalities, Public Goods, And Asymmetric Information

Section: Chapter Questions

Problem 5QP

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