The marginal social cost (MSC) of an electricity generating plant that uses coal is estimated by a consulting firm to be MSC=3Q, where Q is the output. The consulting firm also provides an estimate of the supply schedule. The marginal private cost (MPC) is estimated to be MPC=Q. The demand is estimated to be P=60-2Q. Given these estimates, what is the impact of the externality? How large is the over- or underproduction? What is the socially optimal price? Is there over- or under-pricing?

Given p = 60-2Q TR = 60Q-2Q2 MSC=3Q MPC = Q

Answered: The marginal social cost (MSC) of an…

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter16: Public Goods And Public Choice

Section: Chapter Questions

Problem 1.1P: (Optimal Provision of Public Goods) Using at least two individual consumers, show how the market...

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The marginal social cost (MSC) of an electricity generating plant that uses coal is estimated by a consulting firm to be MSC=3Q, where Q is the output. The consulting firm also provides an estimate of the supply schedule. The marginal private cost (MPC) is estimated to be MPC=Q. The demand is estimated to be P=60-2Q.

Given these estimates, what is the impact of the externality? How large is the over- or underproduction? What is the socially optimal price? Is there over- or under-pricing?

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