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Externalities and Public Goods
The demand function for private airplanes is Q = 280-2p. The marginal cost of ?rms is MCF = 20+Q. There is a negative externality when consumers use their airplanes, resulting in a marginal cost of pollution of MCP = Q/2.
(a) If the market is perfectly competitive, then what is the competitive price and quantity sold?
(2)
(b) What is the socially optimal quantity that should be produced?
(c) What is the dead-weight loss in competitive markets?
(d) What is the marginal cost and bene?t of reducing pollution at the competitive quantity? What is it at the socially optimal quantity?
(e) If the airplane producer is a monopolist, then what is the price and quantity? What is the dead-weight loss arising from the monopoly?
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