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 $M P C = Q$ +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 the marginal social cost (MSC) equals the market demand (P). Setting MSC = P, we have 2Q + 30 = 60 - Q. Solving for Q gives Q = 10 units.

An Environmental Economic Consulting Firm Is Hired to Measure the Negative