b) The inverse demand facing a farm sector is denoted by p= 20-x where x is output, and p is output price. The sector's activities also generate positive externalities and the marginal externality benefits is MEB = 10-0.5x. The marginal cost of production is MC = 2+x. Required: i) How much output will be produced and at what consumer price if the industry operates as a monopoly in the output market? ii) What will be the welfare loss in this case? iii) How much will be produced under competition and at what price? iv) What policies can be used to attain the social optimum?

b) The inverse demand facing a farm sector is denoted by p= 20-x where x is output, and p is output price. The sector's activities also generate positive externalities and the marginal externality benefits is MEB = 10-0.5x. The marginal cost of production is MC = 2+x. Required: i) How much output will be produced and at what consumer price if the industry operates as a monopoly in the output market? ii) What will be the welfare loss in this case? iii) How much will be produced under competition and at what price? iv) What policies can be used to attain the social optimum?

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter17: Externalities And The Environment

Section: Chapter Questions

Problem 1.1P

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