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Suppose demand is given by: MSB($) = 260 - 300 and supply is given by: MPC($) = 10 + 200 Each unit of the good causes $50 in

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Answer #1

We have the following information

Marginal Social Benefit (MSB) = 260 – 30Q

Marginal Private Cost (MPC) = 10 + 20Q

External Damage = 50Q

It is given that there is no regulation. In such a situation the producer will only consider the private cost while taking production decision. We will equate MSB and MPC

MSB = MPC

260 – 30Q = 10 + 20Q

50Q = 250

Equilibrium market quantity = 5

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