2. Table: The following table shows the private value, private cost, and social value for a...
2. Table: The following table shows the private value, private cost, and social value for a market with a positive externality.
- What is the market equilibrium quantity of output for this product?
- What is the socially-optimal level of output in this market?
- How large would a per unit subsidy need to be in this market to move the market from the equilibrium level of output to the socially-optimal level of output?
Homework Answers
A) market eqm, when Private value = private cost
So, at Q* = 4,
So that Private value = private cost = 18
B) at socially Optimal level
Social value = private cost = 22
at Qs = 5,
c) Optimal level of subsidy = the Marginal External benefit at socially Optimal level
At Q = 22, MEB = social value - private value
= 22-15
= $ 7 / unit
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