An environmental economic consulting firm is hired to measure the negative externalities associated with the pollution from an industry. The consultants calculate the marginal social cost of production to be MSC = 2Q+30 and the marginal private cost of production to be +30. The market demand curve for the industry can be expressed as P = 60-Q. What is the socially optimal level of output?

Question

Quizplus · Accepted Answer

The socially optimal level of output is where marginal social cost (MSC) equals marginal social benefit (MSB), or where the demand curve intersects with the MSC curve. 
Setting P=MSC, we get: 
60-Q = 2Q+30 
Rearranging and solving for Q: 
3Q = 30 
Q = 10 
Therefore, the socially optimal level of output is 10 units.

An Environmental Economic Consulting Firm Is Hired to Measure the Negative