Refer to Scenario 16.2 below to answer the question(s) that follow.
SCENARIO 16.2: The marginal benefit for a particular food is described by MB = 60 - q, where q refers to the quantity of the food. The marginal cost of producing the food is described by MC = 3q. There is a negative externality associated with food production and the marginal social cost of food production is MSC = 5q.
-Refer to Scenario 16.2. The efficient output level is ________ and the efficient price is ________.
A) 10 units of food; $20
B) 10 units of food; $50
C) 0 units of food; $0
D) 20 units of food; $40

Question

Quizplus · Accepted Answer

To find the efficient output level, we set the marginal benefit (MB) equal to the marginal social cost (MSC) because the efficient output level occurs where the social benefit of consuming the last unit is equal to the social cost of producing it. From the scenario, MB = 60 - q and MSC = 5q. Setting these equal to each other gives us 60 - q = 5q, which simplifies to 60 = 6q. Solving for q gives us q = 10 units of food. To find the efficient price, we substitute q = 10 into the MSC equation (since the price should reflect the social cost), which gives us MSC = 5(10) = $50. Therefore, the efficient output level is 10 units of food, and the efficient price is $50.