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    External Cost

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    Suppose the external marginal cost of pollution is MCext = 5Q and the internal marginal cost is MCint = 10Q . Further, assume the inverse demand for the product, Q, is given by P = 90-Q .

    a. What is the socially efficient level of output?

    b. How much output would a competitive industry produce?

    c. How much output would a monopoly produce?

    d. Discuss three ways government can induce firms to produce the socially efficient level of output.

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    https://brainmass.com/economics/output-and-costs/external-cost-287028

    Solution Preview

    Socially efficient level of output will be when Total MC = Total MR.
    Total Marginal Cost = 5Q + 10Q = 15Q
    Marginal Revenue = 90 - 2Q
    Thus MC=MR when 15Q = 90 - 2Q
    => 17Q = 90
    => Q ...

    Solution Summary

    The solution is concise and to the point and explains the concepts very well. The solution is very easy to understand as well. Overall, an excellent response to the question being asked.

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