Exhibit 17.3

-Refer to Exhibit 17.3,which shows market equilibrium in the presence of an externality.The socially efficient price and level of output are _____
A)$6 and 50 units, respectively.
B)$12 and 50 units, respectively.
C)$12 and 40 units, respectively.
D)$6 and 40 units, respectively.
E)less than $6 and more than 50 units, respectively.

Question

Exhibit 17.3
 
-Refer to Exhibit 17.3,which shows market equilibrium in the presence of an externality.The socially efficient price and level of output are _____
A)$6 and 50 units, respectively. 
B)$12 and 50 units, respectively. 
C)$12 and 40 units, respectively. 
D)$6 and 40 units, respectively. 
E)less than $6 and more than 50 units, respectively.

Quizplus · Accepted Answer

The socially efficient output level is where the marginal social benefit equals the marginal social cost, which is at a quantity of 40 units. At this point, the socially efficient price is the height of the demand curve at the quantity of 40 units, which is $12. Therefore, choice C is the correct answer.

Exhibit 17.3 -Refer to Exhibit 17.3,which Shows Market Equilibrium in the Presence