Calculating the socially efficient level of output and the monopoly output with the help of external marginal cost and internal marginal cost.
You are an industry analyst that specializes in an industry where the market inverse demand is P = 100 5Q. The external marginal cost of producing the product is MC External = 10Q, and the internal cost is MC Internal = 20Q.
a. What is the socially efficient level of output?
b. Given these costs and market demand, how much output would a competitive industry produce?
c. Given these costs and market demand, how much output would a monopolist produce?
d. Describe actions the government could take to induce firms in this company to produce the socially efficient level of output.