Mr. Barnes operates a power plant in the local market. Mr. Barnes' marginal cost function is: MC(q) = 2 + 0.1q. Mr. Barnes can sell all the output he produces for $9 per unit. In generating power, Mr. Barnes also emits pollution that causes damage to the local community. The marginal external cost of his production is: MEC(q) = 0.05q. What level of output will Mr. Barnes choose to maximize profits? Is this level of production efficient? If not, what could the local community do to ensure efficiency?

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The Answer of Mr. Barnes operates a power plant in the local market. Mr. Barnes' marginal cost function is: MC(q) = 2 + 0.1q. Mr. Barnes can sell all the output he produces for $9 per unit. In generating power, Mr. Barnes also emits pollution that causes damage to the local community. The marginal external cost of his production is: MEC(q) = 0.05q. What level of output will Mr. Barnes choose to maximize profits? Is this level of production efficient? If not, what could the local community do to ensure efficiency?

Mr Barnes Operates a Power Plant in the Local Market