Question

Q7 (1 point) The figure below displays the demand curve for Jane's Auto Tune-Ups in the town of Someville. The supply curve captures Jane's marginal cost. Suppose that each tune-up generates one quart of used motor oil. Currently after each tune-up, Jane dumps the quart of used motor oil in the local river. Each quart of oil dumped in the river imposes a cost of $0.30 on each resident that lives in Someville, due to the cost of filtering their water. There are 10 residents in Someville. What is the marginal social cost of the 40th tune-up? O $o. O $3 O $6 O None of the above answers is correct. 10 8 6 4 O 40 80 120 160 Quantity
thanks for help^^

Answer 1

7) Marginal social Cost is the additional cost incurred by the society for an additional unit of output. It includes the additional cost borne by the society dur to pollution. An additional quart of used motor oil cost $0.30 to each resident and there are 10 residents , therefore in total it costs 0.3*10= $3 to the residents. From graph we can observe that 40th unit incurrs a marginal cost of $3 ( Supply curve is marginal cost curve) . Marginal Social Cost = Marginal cost borne by residents + marginal cost borne by Jane = $6

Answer : $6

8) If government does not regulate then Jane would supply till the point where Supply= Demand .

And supply = demand at Quantity = 80

Answer : 80

9) Deadweight loss is the triangle ABC in the figure shown below . (The figure has been added with additional labelling to provide convenient and lucid understanding) It lies between Marginal social cost and Supply curve . Optimal production takes place when marginal social cost (MSC)= marginal benefit or demand curve

Fig 1 : Deadweight loss in the given case.

At 40^th quantity we find MSC = $6 and demand is also equal to $6. Hence Q^* = 40 is optimal quantity.

To find deadweight loss we need Marginal Social cost at 80 units of output. At 80 , matginal cost to residents would be the same $3 and marginal cost to Jane = $ 5 . MSC at 80 quarts of oil = $(5+3) = $8

Deadweight loss = area of triangle ABC = (1/2)*base* height = (1/2) *(80-40)* (8-5) = $60

Answer : 60

3) answer is

a) More than the efficient level of output.

Explanation: Whenever there is negative externalities like pollution, Marginal Social Cost is greater than marginal private cost . And the producer always equate marginal benefit to marginal private cost without regulation, due to which he ends up producing more than the efficient level of output.