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ClassOf1 Socially Efficient Output

# ClassOf1 Socially Efficient Output

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Calculating the socially efficient level of output and the monopoly output with the help of external marginal cost and internal marginal cost
Calculating the socially efficient level of output and the monopoly output with the help of external marginal cost and internal marginal cost

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11/19/2012

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ClassOf1provides exert guidance for College, Graduate and High schoolhomework and liveonline  tutoring on subjects likeFinance, Marketing,Statistics,Economicsand others. Check out more solved   problems in our Solution Library .

Sub: Economics Topic: Micro Economics
Question:
Calculating the socially efficient level of output and themonopoly output with the help of external marginal costand internal marginal
You are an industry analyst that specializes in an industry where the marketinverse demand is P = 100 – 5Q. The external marginal cost of producingthe product is MCExternal = 10Q, and the internal cost is MCInternal = 20Q.a. What is the socially efficient level of output?b. Given these costs and market demand, how much output would acompetitive industry produce?c. Given these costs and market demand, how much output would amonopolist produce?d. Discuss actions the government could take to induce firms in this industryto produce the socially efficient level of output.
Solution:
a.What is the socially efficient level of output? The socially efficient level of output will be achieved if social marginalbenefit= social marginal cost P = 100 – 5Q.SMC= MCExternal + MCInternal = 20Q+ 10Q= 30Q100 – 5Q = 30Q
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