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Determine the effect of the resource misallocation

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Reference no: EM13914911

Consider the following model of a hypothetical market for MSW management services:

MPB = 25 - 2Q MPC = 4 + Q MEC = 0.5Q

where Q is the number of trash containers per household per month.

a. Quantitatively determine the effect of the resource misallocation due to:

(i) the presence of the negative externality, and
(ii) the use of a flat fee pricing system in the presence of a negative externality.

b. Support your answer to part (a) with a graphi- cal model.

c. Determine the dollar value of a waste-end charge that would restore efficiency to this market. Explain your answer intuitively.

Reference no: EM13914911

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