Question

Refer to Table 10-1. What is the socially optimal quantity of output in this market

Answer 1

The socially optimal quantity of output in this market is D. 0

Quantity Price $ per unit Private Marginal Cost External Marginal Cost

0 100 --- ---

1 90 10 30

2 80 20 30

3 70 40 30

4 60 60 30

5 50 80 30

6 40 100 30

7 30 120 30

Hence, we can see that, in the presence of an externality, the socially optimal output is determined by including the externality either by adding it with marginal cost or marginal benefit.

Therefore, from the given table above, we can see that the socially optimal quantity of output in this market is 0 because it occurs when social marginal cost is equal to the marginal revenue.

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