Externality - maximizing competitive firms (in the absence...

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UBC COMM 295 Externality Solutions Question #1 A food processing industry produces packaged fruit products, among other things, and this process produces wastes as by products. The (marginal) external cost caused by these waste products (to a third party) is expressed as: MEC = 0.05Q, where Q = number of packages produced per week (in thousands). The marginal cost of production, ignoring MEC, at the industry level is: MC = 2 + 0.2Q. The industry demand for the product is: P = 10 - 0.25Q, a. Determine the output rate and price that would be established by profit
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Unformatted text preview: maximizing competitive firms (in the absence of government regulation). b. Determine the efficient output rate and price. c. Find the tax rate that must be imposed on the production of the fruit packages so that the after-tax profit-maximizing output level is equal to the efficient level. Also determine the cost to society (deadweight loss) caused by the firms producing at the profit-maximizing rates. d. Illustrate your results from (a), (b) and (c) in a diagram....
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This note was uploaded on 05/11/2011 for the course COMM 295 taught by Professor Ratna during the Winter '09 term at UBC.

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