1.182 1.183 1.184 1.185 f.
1.186 1.187 The marginal social benefit for the domestic economy is now crossing MC at a quantity of 4 . No trade here and leaving the monopoly in place, would be better than free trade (or even better: allow free trade, but tax consumption such that the price to consumers is 8). 1.188 1.189 Incidentally, we’ve defined the efficient quantity as that for which MSC = MSB, but here (just as in the question about reams of paper in PS4, with the negative production externality), welfare could be improved (vis a vis the monopoly output, or the output at which MSB= MSC) if this country opened up to free trade, AND at the same time put in place a tax that left consumers wanting to buy only the quantity at which MSB intersects the world price (which is less than Q=4, and which can be equated to the world’s MSC)… So students should be marked as correct whichever of the two they say is the efficient quantity.
- Fall '11