(11) Consider a market with private marginal benefit (quantity demanded) given by PMB = 400 – 4Q, social marginal benefit given by SMB = 400 – 2Q and private marginal cost (quantity supplied) given by PMC = 40+4Q. Assume PMC = SMC. (a) Graph these PMB, SMB, and PMC curves. (b) What kind of externality is present? (c) Find the equilibrium price and quantity if producers only respond to private mar- ginal costs.
(11) Consider a market with private marginal benefit (quantity demanded) given by PMB = 400 – 4Q, social marginal benefit given by SMB = 400 – 2Q and private marginal cost (quantity supplied) given by PMC = 40+4Q. Assume PMC = SMC. (a) Graph these PMB, SMB, and PMC curves. (b) What kind of externality is present? (c) Find the equilibrium price and quantity if producers only respond to private mar- ginal costs.
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter10: Externalities
Section: Chapter Questions
Problem 2CQQ
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