Calculate socially optimal level of output for each firm

Assignment Help Business Economics

Reference no: EM13851381

1. Suppose you work as research economist at the EPA. There are two firms that operate in a perfectly competitive marker. This implies that each has the same marginal benefit curve, which in this case is horizontal at MB= $100. Each of the firms, however, has a different marginal private cost schedule

MPC1=20+Q and MPC2=30+2Q

Each firm's production process creates externalities that are valued by society at $10 per unit output

a) Show that without government intervention, the firms' profit maximizing outputs are Q=80 for firm 1 and Q=35 for firm 2, and the market is $100

b) Now calculate that socially optimal level of output for each firm

c) Your boss knows that the firms are currently producing too much output an simply decides that all firms should cut their output by 15%. Show that this is an inefficient solution to this externality problem

2. Suppose a new submarine for the Navy costs $10 billlion. Half the populations (130 million peple) are willing to pay $100 each to have it, and the other half are willing to pay $30 each not to have it. Should it be built?

Reference no: EM13851381

Questions Cloud

Compute the corresponding present value of the tax shield : Compute the corresponding present value of the tax shield, and compare this to your answer in part b. Is the project acceptable according to the Adjusted Present Value (APV)-rule?

Calculate the equilibrium buyers and sellers price : Calculate the equilibrium buyers' and sellers' price with no sales tax, and then with the 20% tax. Explain how answer illustrates the principle that less responsive side of the market will pay more than half the total cost of sales tax.

Briefly review dr drummond mcnaughtons : Briefly review Dr. Drummond McNaughton's guide for writing high-quality papers: Dr. Drumm's Writing Tips.

Monopolist instead of set of perfectly competitive firms : What is the externality associated with an individual driving on a congested highway? How do tolls help alleviate this externality? How should tools be set? (Hint: would you always want the toll to be the same all day?) The steel industry pollutes th..

Calculate socially optimal level of output for each firm : Suppose you work as research economist at the EPA. There are two firms that operate in a perfectly competitive marker. This implies that each has the same marginal benefit curve, which in this case is horizontal at MB= $100. Now calculate that social..

How much preplanning will you need to do : Do you expect to retire at a certain age? How much preplanning will you need to do? Do you expect to retire to a life of leisure, volunteer activity, new career, and so on? Where will you live-same family home, retirement community, part of the ye..

What constant expected growth rate of the firm is in line : What constant expected growth rate of the firm is in line with these figures (assuming no new equity will be issued)? What then are the expected earnings in year 1 and in year 5?

Draw donnas budget line : Donna buys goods X and Y. She can just afford the bundle X = 6 and Y = 11. She can also afford X = 12 and Y= 8. Each of these bundles exhausts her income. Draw Donna’s budget line. What is the ratio of the price of x to the price of y?

Assignment- validity of childhood trauma websites : Assignment- Validity of Childhood Trauma Websites. Help us build a collection of high-quality, scientifically based websites on Childhood Trauma

User Account

All Pages