Reference no: EM13869112
In a perfectly competitive market, the inverse demand for a product is P(Q) = 200 − Q. Production is associated with a marginal private cost, MCP (Q) = Q, and a constant marginal external cost, MCE = 40.
(a) Graph the inverse demand, marginal private cost and marginal social cost on single graph. Label the axes.
(b) What is the unregulated equilibrium under perfect competition? (Define in terms of price and quantity.)
(c) Find PS, CS, and external cost.
(d) What is the Pigovian (efficient) tax in this case? (What does τ equal?)
(e) What are the price and quantity at the social optimum?
(f) Find PS, CS, external cost, and tax if regulated using
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