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Suppose that the supply curve (private marginal cost) for a manufactured good is given by QS = 2P ? 2 and that the demand for the product is given by QD = 10 ? 2P.
a. Find the price and quantity in market equilibrium.
b. Suppose there is a negative externality associated with production, with damages given by MD = Q. What is the optimal quantity of Q for society to produce and consume? How much higher or lower is this than the market equilibrium quantity?
c. If society allows the market outcome (as opposed to requiring the optimal Q) how much loss is there in total social welfare?
d. Suppose we instead impose a policy that limits production of Q to a maximum of 3 units.
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The main difference between perfect competition and monopolistic competition is, rices under an ideal cartel situation will be equal to
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Draw a correctly labeled loanable funds graph that shows what happens to real interest rates.
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