For the next four questions, consider the market for a type of cooling lubricant used in manufacturing small electronic components. It makes production much cheaper, but it also causes pollution of various types.
The lubricant is produced by a small, perfectly competitive, price-taking firm. It charges a price of $25 per unit and, based only on private costs, produces 8000 units.
Due to the externality that occurs when pollution is created by this production process, a government agency intervenes, saying that when a quantity of 8000 units is produced the firm is creating a marginal social cost per unit of $4. The government recommends that only 6000 units be produced.
Assume throughout that all "curves" are really straight lines. This information will be repeated in future questions for your convenience. For now, use what you know about firms and firm behavior to calculate marginal (private) cost when 8000 units are produced. Carefully follow all numeric instructions.
P= $25 per unit Q=8000 A perfectly... View the full answer