14. Suppose that the market for a certain good has an inverse demand of P = 200 – Q. The aggregate private marginal cost for the firms that produce the good is MC = 20 + Q. However, production of the good also creates pollution with a external marginal cost of EMC = 10 + 2Q. e. If this is a perfectly competitive market with no regulation, what is the equilibrium price and quantity produced? f. Suppose instead that the market is a monopoly. Calculate the profit- maximizing price and quantity. g. Determine the socially efficient price and quantity for the good. h. Calculate the socially optimal per-unit tax to levy on the competitive firms and the monopolist respectively to make them produce at the socially efficient level.

14. Suppose that the market for a certain good has an inverse demand of P = 200 – Q. The aggregate private marginal cost for the firms that produce the good is MC = 20 + Q. However, production of the good also creates pollution with a external marginal cost of EMC = 10 + 2Q. e. If this is a perfectly competitive market with no regulation, what is the equilibrium price and quantity produced? f. Suppose instead that the market is a monopoly. Calculate the profit- maximizing price and quantity. g. Determine the socially efficient price and quantity for the good. h. Calculate the socially optimal per-unit tax to levy on the competitive firms and the monopolist respectively to make them produce at the socially efficient level.

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter10: Externalities

Section: Chapter Questions

Problem 8PA

See similar textbooks

Similar questions

Suppose that the market for a certain good has an inverse demand of P = 200 − Q.The aggregate private marginal cost for the firms that produce the good is MC = 20 + Q.However, production of the good also creates pollution with an external marginal cost ofEMC = 10 + Q/2.a) If this is a perfectly competitive market with no regulation, what is theequilibrium price and quantity produced?b) Suppose instead that the market is a monopoly. Calculate the profit-maximizingprice and quantity.c) Determine the socially efficient price and quantity for the good.d) Calculate the socially optimal Pigouvian tax to levy on the competitive firms tomake them produce at the socially efficient level.
10. Which is not a valid argument favoring the use of output regulation over input regulation?a. Firms may have different ways of reducing pollution.b. Firms may know better than the government how to reduce pollution cheaply.c. It may be easier to monitor the use of technology than the level of emissions.d. Output regulations, when enforceable, can ensure that the efficient level of pollution is not exceeded.
I notice that the last section which I'm including isn't explained. ------ Regulation Versus Tradable Permits Determine the total cost of eliminating six units of pollution using both methods, and enter the amounts in the following table. (Hint: You might need to get information from previous tasks to complete this table.) Proposed Method Total Cost of Eliminating Six Units of Pollution (Dollars) Regulation ?? Tradable Permits ?? In this case, you can conclude that eliminating pollution is ___ costly to society when the government distributes tradable permits than when it regulates each firm to eliminate a certain amount of pollution. ------ Can you please explain this part of the question? Much appreciated.
5. Correcting for negative externalities - Regulation versus tradable permits Suppose the government wants to reduce the total pollution emitted by three local firms. Currently, each firm is creating 4 units of pollution in the area, for a total of 12 pollution units. If the government wants to reduce total pollution in the area to 6 units, it can choose between the following two methods: Available Methods to Reduce Pollution 1. The government sets pollution standards using regulation. 2. The government allocates tradable pollution permits. Each firm faces different costs, so reducing pollution is more difficult for some firms than others. The following table shows the cost each firm faces to eliminate each unit of pollution. For each firm, assume that the cost of reducing pollution to zero (that is, eliminating all 4 units of pollution) is prohibitively expensive. Firm Cost of Eliminating the... First Unit of Pollution Second Unit of Pollution…
19.6 Suppose there are only two individuals in society. Person A’s demand curve for mosquito control is given by qa = 100- pfor person B, the demand curve for mosquito control is given by qb= 200-p Suppose mosquito control is a pure public good; that is, once it is produced, everyone benefits from it. What would be the optimal level of this activity if it could be produced at a constant marginal cost of $120 per unit? If mosquito control were left to the private market, how much might be produced? Does your answer depend on what each person assumes the other will do? If the government were to produce the optimal amount of mosquito control, how much will this cost? How should the tax bill for this amount be allocated between the individuals if they are to share it in proportion to benefits received from mosquito control?
Suppose that the inverse demand curve for paper is p = 200 - Q, the private marginal cost (unregulated competitive market supply) is MCp = 80 + Q, and the marginal harm from gunk is MCg = Q. What is the unregulated competitive equilibrium? What is the social optimum? What specific tax (per unit of output or gunk) results in the social optimum? What is the unregulated monopoly equilibrium? How would you optimally regulate the monopoly? What is the resulting equilibrium?
1. A market has a demand function given by the equation Qd = 180 – 2P, and a supply function given by the equation Qs = -15 + P. The market is government -regulated with a price support per unit and production quotas. If the price is set at $72 per unit, what production quota is needed to make sure there are no shortages or surpluses? Considering the price support and the quota, calculate: a. Deadweight loss
Suppose that the inverse market demand curve for cloth is p = 150 - 2Q, the private marginal cost (unregulated competitive market supply) is = 75 + Q, and the private marginal damage from pollution is = 2Q. What is the unregulated competitive equilibrium quantity and price? What is the social marginal cost of production and social equilibrium quantity and price? What specific tax t (per unit) would result in the social optimum?
#8. If government regulation forces firms in an industry to internalize the externality, then we can expect the equilibrium price of the good to ________ and the equilibrium quantity to ________. a. increase; increase b. increase; decrease c. decrease; decrease d. decrease; increase e. increase; remain unchanged
3. Consider a competitive industry with production valued according to a MB = 200 - Q and production entails a private marginal cost MC = 50 + 2Q but also an external cost MCE = 30 + 2Q associated to air pollution resulting from the production process. (c) Assuming that the producers do not have the right to pollute the air but they can legally buy the rights from potential victims, what price pR would they pay for those rights (assume that one right to pollute allows to produce one unit of output)? What quantity of output will producers produce if they have to buy the pollution rights? Is this solution efficient? (d) Answer question (c) for an alternative scenario in which the firms have the right to pollute but potential victims can buy them from them in order to prevent them from polluting too much.
Figure 8.1 shows the marginal pollution control costs per ton for a firm that would pollute at Qmax without any regulation. Suppose a pollution tax of T1 per ton were implemented, with the firm reducing pollution to Qtax. What area(s) would represent(s) the firm’s pollution reduction costs, not considering the taxes it pays? Group of answer choices A+B A+B+C B+C D C
Suppose there are two individuals, Bob and Linda, who have demand curves for good X characterized by the equation P= 6-2QandP= 6-Q. Assume that the good is produced competitively, and that the marginal cost of production (Supply) is given by P= 2Q. a) Assume that good X is a private good. What is the market demand (i.e. marginal social benefit) for good X? Solve for the market equilibrium price and quantity. Depict graphically. b) If good X is a public good, what is the market demand (i.e. marginal social benefit) for good X? Solve for the efficient price and quantity. Depict graphically. c) Comment on why your answers in parts a and b are different.