You are an industry analyst that specializes in an industry where the market inverse demand is...
You are an industry analyst that specializes in an industry where the market inverse demand is P = 100 - 2Q. The external marginal cost of producing the product is MCExternal = 8Q, and the internal cost is MCInternal = 18Q.
Instructions: Enter your responses rounded to
the nearest two decimal places.
a. What is the socially efficient level of output? _____units
b. Given these costs and market demand, how much output would a
competitive industry produce? ____units
c. Given these costs and market demand, how much output would a
monopolist produce?_____ units
d. Which of the following are actions the government could take to
induce firms in this industry to produce the socially efficient
level of output.
Homework Answers
A) Setting P= MC internal + MC external we have,
100-2Q= 8Q+18Q
Q= 100/28 = 3.57
B) competitive industry will produce
P= MC internal
100-2Q=18Q
Q= 5
C) For monopolist
MR=MC
MR = 100- 4Q
MC =18 Q
Therefore, 100= 22Q
Q= 4.54
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