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.© BrainMass Inc. brainmass.com October 10, 2019, 12:19 am ad1c9bdddf
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 ...
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