Micro2Solutions

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

This preview shows page 1. Sign up to view the full content.

This is the end of the preview. Sign up to access the rest of the document.

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...
View Full Document

## This note was uploaded on 08/26/2010 for the course ECON 208 taught by Professor Dickenson during the Fall '07 term at McGill.

Ask a homework question - tutors are online