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    Socially Optimal Level of Output

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    The demand for speciality glue is given as follows: P = 1200 - 6Q, where P is price per 100 pounds of specialty glue produced and Q is the amount produced and sold in hundreds of pounds. The marginal cost of producing glue for the entire glue industry is as follows: MPC = 700 + 2Q. Let the production of speciality glue result in the following marginal pollution cost: MC = 200 + Q. The MSC = 900 + 3Q. If the firms in the industry attempt to produce a socially optimal level of output, what will that level of output be?

    a 2

    b 20

    c 200

    d 2000

    And what will the price be for the socially optimal level of output?

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    Solution Summary

    The expert finds the socially optimal level of output in the case.