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    Marginal Cost Analysis

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    The external marginal cost of air pollution is MCexternal=5Q and internal marginal cost is MCinternal=10Q. Also assume the inverse demand for product Q is represented by P=90-Q.

    1. what is socially efficient level of output
    2. how much output would competitive industry produce
    3. how much output would monopoly produce
    4. discuss details on how government induces firms to produce socially efficient level of output.

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    Solution Preview

    Answer 1:

    At socially efficient levels of output the total Marginal Cost = Marginal Revenue
    Total Marginal Cost = 10Q + 5Q = 15Q
    Marginal Revenue = 90 - 2Q
    Thus at Profit Maximization ...

    Solution Summary

    The solution calculated the efficient level of output for the question given.