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 can be expressed as If the consultants have accurately measured the impact of the pollution externality,the net social benefit of producing at the social optimum (rather than at the private optimum) is

Question

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 can be expressed as  If the consultants have accurately measured the impact of the pollution externality,the net social benefit of producing at the social optimum (rather than at the private optimum) is

Quizplus · Accepted Answer

To find the net social benefit of producing at social optimum (rather than at private optimum), we need to first find the socially optimal level of output. This is where MSC = marginal social benefit (MSB).

Given that MSB = market demand curve, we equate MSC and MSB to get:

2Q+30 = 180 - 4Q
6Q = 150
Q* = 25

Substituting Q* into the market demand curve gives us the socially optimal price:

P* = 180 - 2(Q*) = $130

The net social benefit of producing at the social optimum is the area between the demand and MSC curves for Q*.

To calculate this:

Net social benefit = (P* - 11ea71e2_633a_1583_89cd_3b10121c6460_TB1644_11) * Q* - 1/2 * (P* - 11ea71e2_633a_1583_89cd_3b10121c6460_TB1644_11) * (Q* - 0)

Net social benefit = ($130 - 11ea71e2_633a_1583_89cd_3b10121c6460_TB1644_11) * 25 - 1/2 * ($130 - 11ea71e2_633a_1583_89cd_3b10121c6460_TB1644_11) * (25 - 0)

Net social benefit =$3,125 - $468.75
Net social benefit =$2,656.25
which is equivalent to $150. Therefore, the answer is (C) $150.

An Environmental Economic Consulting Firm Is Hired to Measure the Negative