Managerial Economics & Business Strategy 8th Edition by Michael Baye,Jeff Prince

Exercise 1

You are an industry analyst who specializes in an industry where the market inverse demand is P = 200 - 4 Q. The external marginal cost of producing the product is MC External =6 Q, and the internal cost is MC Internal = 12 Q.
a. What is the socially efficient level of output?
b. Given these costs and market demand, how much output would a competitive industry produce?
c. Given these costs and market demand, how much output would a monopolist produce?
d. Discuss actions the government might take to induce firms in this industry to produce the socially efficient level of output.