1. Suppose that in the market for paper, demand is p = 100-Q. The private marginal costis MCP= 10 + Q. Pollution generated during the production process creates externalmarginal harmequal to MC°= Q. Is social welfare greater under monopoly or undercompetition?Chemical Firm1 Ton2 TonsPollution PollutionShut1520Down1520Operate2510Beach 2. The above figure shows the payoff matrix for two firms. A chemical firm must choosebetween a low level of production which yields one ton of pollution into a nearby lakeand a high level of production which yields two tons of polution into the nearby lake.A private beach on the lake must decide whether to operate or not. Increased pollutionreduces the number of people who wish to visit the beach.a) Determine the Nash equilibrium without property rights.b) If the chemical firm owns the lake and the beach owner must pay the chemicalfirm $10 to produce only one ton of pollution, what is the outcome?c) If the beach owner owns the lake and the chemical firm must pay $10 per tonof pollution, what is the outcome?d) Compare results of part a, b, and c.

Note:- Since we can only answer one question at a time and as the exact one is not specified, we'll…

1. Suppose that in the market for paper, demand is p= 100-Q. The private marginal cost is MC= 10 + Q. Pollution generated during the production process creates external marginal harmequal to MC°= Q. Is social welfare greater under monopoly or under competition? Chemical Firm 1 Ton Pollution Pollution 15 2 Tons Shut 20 Down 15 20 Beach

1. Suppose that in the market for paper, demand is p= 100-Q. The private marginal cost is MC= 10 + Q. Pollution generated during the production process creates external marginal harmequal to MC°= Q. Is social welfare greater under monopoly or under competition? Chemical Firm 1 Ton Pollution Pollution 15 2 Tons Shut 20 Down 15 20 Beach

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter17: Externalities And The Environment

Section: Chapter Questions

Problem 2.6P: (External Costs with Variable Technology) Think of an industry that pollutes the water and has...

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