Question

Question 2: Consider the market for Florida oranges. The demand for Florida oranges is given by the inverse demand function p = 70 -- 2Q The market cost function for firms that sell Florida oranges is C?(Q) = 100 + 302 Shipping Florida oranges around the country uses trucks that produce C02 gas. For parts (1)-(4), the social cost of this pollution is Cº (Q) = 302 Note that both of these are cost functions, not marginal cost functions. (1) How much is produced by the firms in the competitive equilibrium? (2) What is the socially best level of production? (3) How much consumer surplus, producer surplus, and deadweight loss is there at the competitive equilibrium? Draw a graph to support your answer. (4) Now suppose there is a monopolist that sells Florida oranges. How much is produced by the monopolist? (5) How much consumer surplus, producer surplus, and deadweight loss is there under the monopolist? Draw a graph to support your answer. (6) Assuming taxes must be positive, could a tax eliminate deadweight loss in part (3) or in part (5)? For each of these parts where the answer is yes, calculate the tax t per unit that would eliminate the deadweight loss.

Answer 1

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