Socially efficient price and quantity for the good

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Suppose that the market for a certain good has a demand of P = 80 - Q. The aggregate private marginal cost for the firms that produce the goods faces is MC = 3Q +20. However, production of the good also creates pollution with a marginal external cost of MEC = 2Q.

a) If this is a perfectly competitive market with no regulation, what is the equilibrium price and quantity produced?

b) Suppose instead that the market is a monopoly. Calculate the profit-maximizing price and quantity.

c) Determine the socially efficient price and quantity for the good.

d) Calculate the socially optimal per-unit tax to levy on the competitive firm and the monopolist respectively to make them produce at the socially efficient level.

Reference no: EM132445847

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