EEP101_PS1 - EEP 101/Econ 125 Spring 2002 GSIs: Alix,...

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EEP 101/Econ 125 Spring 2002 GSIs: Alix, McKim, Schoengold Problem Set #1: due on Thursday, February 14 at lecture. Late assignments will not be accepted. Numerical Questions (1) Suppose that an industry has an inverse demand curve given by P = 90 – 3Q, where P is the price in dollars, and Q is the quantity. The marginal private cost (MPC) of production is MPC = 10 + Q, and the marginal external cost of production (MEC) is given by MEC = 2Q. For all parts of this question, solve the problems both algebraically and using the appropriate graph. a) Determine the socially optimal level of output (Q*). Calculate the total external cost (TEC*), consumer surplus (CS*), producer surplus (PS*), and total social welfare (SW*) at this level of output. b) Calculate the quantity produced if the market is in perfect competition and only private costs are accounted for (the externality associated with production is NOT taken into account). What is the quantity produced (Q c )? Calculate the total external cost (TEC c ), consumer surplus (CS c ), producer surplus (PS c ), total social welfare (SW c ) and dead-weight loss (DWL c ) at this level of output. c)
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This note was uploaded on 08/01/2008 for the course ECON 101 taught by Professor Wood during the Spring '07 term at University of California, Berkeley.

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EEP101_PS1 - EEP 101/Econ 125 Spring 2002 GSIs: Alix,...

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