Net gain in social welfare-internalizing the externality


The production of electricity by burning coal creates air pollution. Suppose the Marginal Private Benefits = Marginal social Benefits = MSB = 50-q, where q is the quantity of electricity. Also, suppose that the Marginal Private Costs are given by: MPC=10+3q, where q is the quantity of electricity and the Marginal Social COsts are given by MSC=20 + 4q. A) Graph and label MSB, MPC, and MSC B) Find the market level of pollution? C)FInd the socially optimal level of pollution D) Compute the total benefits to society from pollution reduction to the socially optimal level of output E) Compute the net gain in social welfare resulting from internalizing the externality

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Microeconomics: Net gain in social welfare-internalizing the externality
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