Question

Exhibit 173 Prices ($) 121 MSC II je o s - - 1 D 1 Quantity 0 40 50 Refer to Exhibit 17.3, which shows market equilibrium in the presence of an externality. The socially efficient price and level of output are O a $6 and 50 units, respectively. O b. $12 and 50 units, respectively, O c. $12 and 40 units, respectively. O d. $6 and 40 units, respectively. O e. less than $6 and more than 50 units, respectively.

Answer 1

1) social efficient level is when marginal social benefits equals to marginal social cost.

Now the point which shows this intersection of MSB and MSC is as point b from given graph.

So, option C is correct that is 12 $ And 40 units.

2) now the area of social welfare loss is defined as the area which shows market inefficiencies.

Now, in the graph when price is 70$ then the area of social loss is bac

So, option D is correct option.