Demand for a good is given by Q = 100 - P. Assume that the market is perfectly competitive, so that the industry supply curve is equal to the private marginal cost of production: MC = 10 + Q. There is also a $10 per unit negative externality. What will the equilibrium quantity be if the firm only pays for its private costs, i.e. does not internalize the externality?

Demand for a good is given by Q = 100 - P. Assume that the market is perfectly competitive, so that the industry supply curve is equal to the private marginal cost of production: MC = 10 + Q. There is also a $10 per unit negative externality. What will the equilibrium quantity be if the firm only pays for its private costs, i.e. does not internalize the externality?

Microeconomics

13th Edition

ISBN:9781337617406

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter17: Market Failure: Externalities, Public Goods, And Asymmetric Information

Section: Chapter Questions

Problem 2QP

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