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Really Really easy quick Question.
1. Consider the production of a good Q that causes an externality. Suppose the private marginal cost of production is PMC = 6. Demand for the good is given by Q = 20 - 2P. An externality is caused by production, that creates marginal damage MD = 1/2 Q.
b) What is the economically efficient quantity of Q, Q*?
Answer:
6 + 1/2 Q = 10 - 1/2 Q => Q* = 4
Where is the 10 - 1/2 Q come from?
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