Micro2Solutions

A b c d e 50 4 50 6 50 8 20 6 20 4 solution

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Unformatted text preview: The optimal level is 50 units of output sell 50 permits allowing the production of 50 units of output. At the optimal level, MPC=$4 and MB=$8 the price of a permit will be $4 Page 32 of 33 ©Prep101 www.prep101.com/freestuff Use the following figure to answer question 50: $ S = MC 5 4 3 MSB 2 1 MB = D 5 10 15 20 25 Quantity Q50. Under public provision, a deadweight loss equal to ___ associated with the externality will be eliminated. a) b) c) d) e) $20 $15 $10 $5 $0 Solution: d) $5 Efficient quantity occurs where MSB = MC Q= 20 and P = $4 If unregulated, produce where MB= MC Q= 15 and P = $3 When Q = 15, MSB = $5, MPB = $3 Deadweight loss = (1/2)*(5 -3)*(20 – 15) = $5 Page 33 of 33...
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This note was uploaded on 08/26/2010 for the course ECON 208 taught by Professor Dickenson during the Fall '07 term at McGill.

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