Determine the efficient amount of steel production

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Reference no: EM131246003

Externalities. Consider the example of the perfectly competitive steel firm from class. The firm takes the market price p = $35 (per unit of steel) as given and chooses quantity q (units of steel) to maximize its profits. The firm has increasing (private) marginal costs given by the equation MC = 5q. The residents in a nearby town suffer damages from the firm’s emissions of sulfur dioxide. A researcher at a local university has estimated their marginal damages to be given by the equation MD = 2q.

(a) Determine the efficient amount of steel production, q∗, from society’s perspective.

Reference no: EM131246003

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