Suppose a firm producing roof shingles imposes a negative externality on the surrounding area due to the noxious fumes emitted from the plant.The private marginal cost,social marginal cost and marginal benefit associated with the production of the shingles are given by the following equations: MCP = 5 + 2Q MCS = 10 + 3Q MB = 50 - Q
A competitive free market will produce units,at a price of _ per unit.

Question

Quizplus · Accepted Answer

In a competitive free market, the equilibrium quantity is determined by the intersection of the marginal benefit (MB) and marginal social cost (MCS) curves. Solving for Q:MB = MCS50 - Q = 10 + 3Q4Q = 40Q = 10The equilibrium price is then determined by the intersection of the marginal cost (MC) and marginal benefit (MB) curves. Solving for P:MC = MB5 + 2Q = 50 - Q3Q = 45Q = 15P = MC = 5 + 2(15) = $35

Suppose a Firm Producing Roof Shingles Imposes a Negative Externality