Reference no: EM131164544
F1 & F2 are the fixed costs of Firm 1 and Firm 2. D1 & D2 are the marginal costs of each firm.
The cost function is as follows: C1=F1+0.5D1(q1)^2, C2=F2+0.5D2(q2)^2
A=400, B=5, F1=20, F2=25, D1=0.8, D2=0.25, Market Externality=-10
Demand: Q=400-5P
Competitive:
Q=204.878, P=39.0244, NSB=6146.34, Total Externality=-2048.78
Monopoly:
Q=135.4839, P=52.9032, NSB=4064.4269, Total Externality=-1354.839
The questions I have yet to answer for my assignment are the following:
1. What is the socially efficient quantity for monopoly?
2. What is the NSB of the socially efficient quantity?
3. Suggest a Pigouvian tax/subsidy rate ($/unit) that will restore efficieny under competition and under monopoly.
Any tips/help would be very much appreciated.
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