External Costs with Fixed-Production Technology
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8. (External Costs with Fixed-Production Technology) Review the situation illustrated in Exhibit 1 in this chapter. If the government sets the price of electricity at the socially optimal level, why is the net gain equal to triangle abc, even though consumers now pay a higher price for electricity? What would the net gain be if the government set the price above the optimal level?
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Solution Summary
External Costs with Fixed-Production Technology are examined. If the government sets the price of electricity at the socially optimal level, then why is the net gain equal to triangle abc, even though consumers now pay a higher price for electricity is determined.
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The marginal private cost shows the cost associated to the firm in question. It is the marginal private cost that is used by business decision makers in their profit maximization goals. Marginal social cost is similar to private cost in that it includes the cost functions of private enterprise bust also that of society as a whole, including parties that have no direct association with the private costs of production When ...
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