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Market for political advertising during election campaign

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Reference no: EM131056409

Consider the market for political advertising during an election campaign. The private marginal cost of producing a political advertisement is PMC = 200 + 2q where Q is the quantity of advertisements, and the private marginal benefit (demand) curve is PMB = 1000 - 3q. The marginal negative production externality e in the market is e=3q (note that the externality from producing an additional advertisement increases with the number of advertisements). Which of the following statements is true?

a. The socially efficient level of output is q=200, which suppliers will produce if a production tax of 600 per unit is imposed per political advertisement.

b. The socially efficient level of output is q=100, which suppliers will produce if a production tax of 300 per unit is imposed per political advertisement.

c. The socially efficient level of output is q=160, which suppliers will produce if no taxes are imposed in this market.

d. The deadweight loss in the market equilibrium is $18000.

e. The deadweight loss in the market equilibrium is $9000.

Reference no: EM131056409

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