Consider a competitive market for single-use plastic bags. Market demand is given by P=15 - Q/500, where P is the market price and Q is the quanity demanded. The marginal cost of producing plastic bags is constant, resulting in a market supply curve given by P = 3. However, every single-use plastic bag generates an external cost equal to Q/500 (note: it is increasing in the quantity produced). Hence the marginal social cost is MSC = 3 + Q/500. Now carefully respond to the following questions. A. What is the price and quantity of plastic bags prodyced in the competitve market equilibrium? B. What is the efficient (or socially optimal) quantity of plastic bags? At what price should they be sold?

Consider a competitive market for single-use plastic bags. Market demand is given by P=15 - Q/500, where P is the market price and Q is the quanity demanded. The marginal cost of producing plastic bags is constant, resulting in a market supply curve given by P = 3. However, every single-use plastic bag generates an external cost equal to Q/500 (note: it is increasing in the quantity produced). Hence the marginal social cost is MSC = 3 + Q/500. Now carefully respond to the following questions. A. What is the price and quantity of plastic bags prodyced in the competitve market equilibrium? B. What is the efficient (or socially optimal) quantity of plastic bags? At what price should they be sold?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter16: Government Regulation

Section: Chapter Questions

Problem 9E

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