You are an industry analyst that specializes in an industry where the market inverse demand is...

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You are an industry analyst that specializes in an industry where the market inverse demand is...

You are an industry analyst that specializes in an industry where the market inverse demand is P = 300 - 5Q. The external marginal cost of producing the product is MC_External = 8Q, and the internal cost is MC_Internal = 14Q.

a. What is the socially efficient level of output?
______ units

b. Given these costs and market demand, how much output would a competitive industry produce?
______ units

c. Given these costs and market demand, how much output would a monopolist produce?
______ units

d. Which of the following are actions the government could take to induce firms in this industry to produce the socially efficient level of output.
______ units

business economics

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Answer 1

Answer #1

A) Socially efficient occurs at the point P = MCE + MCI

300-5Q = 8Q + 14Q

300 = 27Q

Q = 11.11 units

B) A competitive output is where P = MCI

300-5Q = 14Q

300 = 19Q

Q = 15.8 units

C) Monopolist produces at the point MR = MCI

300-10Q = 14Q

300 = 24Q

Q = 12.5 units

D) Impose a tax on production equal to marginal external cost of 8 dollars for every unit of output produced.

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Answer 2

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