Reference no: EM133425923

Question: Suppose that Ron's consumption of a good Q generates a positive externality (external benefit). Then Ron's marginal private benefit curve is MPB(Q) = 40 - (1/4)·Q and Ron's marginal private cost curve is MPC(Q) = 10 + (1/2)·Q. The marginal external benefit curve is MEB(Q) = 30 - (1/4)·Q. a) In the graph below, illustrate (plot) the MPC(Q), MEB(Q), and MPB(Q) curves associated with Ron's consumption of good Q. Explain, calculate, and illustrate Ron's competitive market equilibrium quantity of good Q, QC, and the competitive market price of good Q, PC. b) Determine (derive) and illustrate the marginal social benefit curve, MSB(Q), and the marginal social cost curve, MSC(Q). c) Is QC socially efficient? Explain explicitly. If QC is not socially efficient, explain, calculate, and illustrate the socially efficient quantity, QE, and the socially efficient price, PE. Calculate, explain, and illustrate the deadweight loss at QC, DWL(QC). Should the government force Ron to consume the quantity, Q', at which MEB is zero, i.e., MEB(Q') = 0? Explain. d) Given the change in Q from QC to QE, calculate and illustrate the change in net private benefit, ?NPB, and the change in total external benefit, ?TEB. e) If Ron's consumption changes from QC to QE, would society be able to compensate Ron for the change in Ron's consumption of good Q from QC to QE? If so, how much would society be able to pay Ron in compensation for increasing the consumption of good Q? Clearly explain or justify your conclusions