Question

p.45 7. Canned cantaloupe is produced by a monopoly firm, Cantacon Unfortunately, in producing its product, Cantacon incinerates the cantaloupe rinds and releases through its smokestacks an unsavory smoke which drifts into neighboring towns and annoys people. The annoyance of people is reflected by a social marginal cost curve, SMC, which is above Cantacon's private marginal cost, PMC. Figure 2.7 contains the relevant information about the market for canned cantaloupe Indicate the monopoly output and price on your graph. Does the public think too much, not enough, or iust the right amount of canned cantaloupe is being produced? Explain. Do you think that this result generalizes, ie., holds for all cases where monopoly and an externality coexist? Figure 2.7 The Market for Cantaloupe SMC PMC P-PO MR(O)

Answer 1

produstim as the ttrm dse no七conei dentne SMC. It podusing at On whee o o Externalim and mona 8 caunis , 1 a) witn tan-the auk pul M &ご。Tae exe/nality to İntern aliseeR hent output and Price charge is Pa over podustion as the hi i equat to PMc. Thene io over ave lon (FG CA) e) kreaking the monopouy oiey hat sounalo good