3.2 Externalities Consider the perfectly competitive market for strawberries at the Davis farmers market. The market’s...

3.2 Externalities
Consider the perfectly competitive market for strawberries at the Davis farmers market. The market’s inverse demand curve is p = 600 − 20Q. Firms selling strawberries at the farmers market have marginal cost curve MCP = 20Q. Also assume that, because there is a fixed amount of space at the farmers market, each strawberry sold at the farmers market has negative social cost (less bread stands!), with a cost of space-taking of MCst = 12Q. However, because having stawberries around the farmers market puts buyers in a good mood, there is also a positive externality that strawberry firms receive equal to MBgm = 2Q (MB is marginal benefit).
A. What are the perfectly competitive equilibrium price and quantity in this market?
B. What is the socially optimal equilibrium price and quantity in this market?

C. Please draw this market, including the following curves—demand, private marginal cost, and social marginal cost. Also label the following points—the perfectly competitive equilibrium and the socially optimal equilibrium. Also please label axes and where curves cross axes.
D. What is deadweight loss in this market?

Now suppose the Davis farmers market wants to set a specific tax on this market to ensure the socially optimal level of strawberries.
E. What specific tax should the Davis farmers market set?
Now assume that one farm owned by an ex-chancellor of UCD has bribed the Davis farmers market officials to obtain a monopoly in selling strawberries at the farmers market. Assume the demand and marginal cost curves stay the same.
F. What is the un-regulated monopoly equilibrium in this market in terms of price and quantity?

G. Please draw this market, including the following curves—demand, marginal revenue, private marginal cost, and social marginal cost. Also label the fol- lowing points—the un-regulated monopoly equilibrium and the socially optimal equilibrium. Also please label axes and where curves cross axes.
H. What is deadweight loss in this market?

Suppose again that the Davis farmers market wants to set a specific tax on this market to ensure the socially optimal level of strawberries.
I. What specific tax should the Davis farmers market set in the case of the monopoly?

Solutions

Expert Solution

Rahul Sunny answered 1 month ago

Next > < Previous

Related Solutions

Consider the perfectly competitive market for strawberries at the Davis farmers market.The market’s inverse demand curve...

Consider the perfectly competitive market for strawberries at the Davis farmers market.The market’s inverse demand curve isp= 600−20Q. Firms selling strawberries at thefarmers market have marginal cost curveM CP= 20Q. Also assume that, because there isa fixed amount of space at the farmers market, each strawberry sold at the farmers markethas negative social cost (less bread stands!), with a cost of space-taking ofM Cst= 12Q.However, because having stawberries around the farmers market puts buyers in a good mood,there is also...

1 Externalities I Consider the market for private economics mentor in Davis. Assume it is perfectly...

1 Externalities I Consider the market for private economics mentor in Davis. Assume it is perfectly competitive. The market’s inverse demand curve is p = 1600 − 5Q, with Q being the number of students receiving mentor per quarter and p being the price per quarter. Economics mentors’ private marginal cost curve is MCP = 100 + 5Q. Also assume that, because economics professors curve their classes, when one student improves her grade, it causes every other student to have...

Assume a perfectly competitive market without externalities. Market Demand is given by P = 25 −...

Assume a perfectly competitive market without externalities. Market Demand is given by P = 25 − 1 4 Q and Market Supply is given by P = 1 3 Q + 8. The government imposes a per-unit tax of t=1.05. What is the change in Producer Surplus because the tax is imposed? Enter a number only, no $ sign. Enter a negative sign if Producer Surplus decreases.

Consider a competitive market for red lentils with 10,000 identical farmers, a competitive market price of...

Consider a competitive market for red lentils with 10,000 identical farmers, a competitive market price of $5 and the following ?? for each farmer: MC = $0.5+ $0.05Q Also consider the following market demand function: QD=1,100,000-40,000P a) Calculate the optimal level of production (in tonnes) for each farmer (show workings). b)Assuming 10,000 lentil farmers of equal size, determine the market supply function and the equilibrium market quantity (show workings). c) Consider that the government now imposes a 25% tax...

Explain why the market for soybeans is perfectly competitive, with thousands of soybean farmers, while the...

Explain why the market for soybeans is perfectly competitive, with thousands of soybean farmers, while the market for computer processor chips is dominated by a few large firms.

Are the following markets perfectly competitive? Explain answers. a) Potato farmers selling in a local market....

Are the following markets perfectly competitive? Explain answers. a) Potato farmers selling in a local market. b) Nancy Ajram, the famous Lebanese singer, concerts. c) SUVS [Sport Utility Vehicle].

3. The price of strawberries is $10 a bucket. Three competitive strawberry farmers, X, Y, and...

3. The price of strawberries is $10 a bucket. Three competitive strawberry farmers, X, Y, and Z, face different cost conditions: Total Cost (thousands of dollars) Thousands of Buckets X Y Z 10 100 275 50 20 200 335 125 30 300 400 225 40 400 470 350 50 500 545 500 60 600 625 675 70 700 710 875 80 800 800 1100 3.1. For each farmer, calculate the marginal cost at each output level. 3.2. What are the...

Consider a perfectly competitive market for Widgets. Depict in agraph a market that determines a...

Consider a perfectly competitive market for Widgets. Depict in a graph a market that determines a market price of $50 and quantity of 1,000,000 units per month. Depict the firm-specific demand curve. At this price the firm finds its profit maximizing quantity is 80 units per month. Average Total Cost is $60 and Average Variable Cost is $45 at this quantity. Is this firm earning economics profits or losses? Calculate fixed costs, should this firm stay open (produce 80 units)...

Consider a perfectly competitive market in which all firms areidentical. The market is in the...

Consider a perfectly competitive market in which all firms are identical. The market is in the long-run equilibrium, the market equilibrium price is P , and each firm produces q units of good.The government decides to impose a tax of size T per unit of good.a) After the tax is imposed, how would the market equilibrium price and quantity change in the short-run? How does the quantity produced by each firm change in the short-run? Illustrate your answers using a diagram....

Consider the monopolistically competitive market structure, which has some features of a perfectly competitive market and...

Consider the monopolistically competitive market structure, which has some features of a perfectly competitive market and some features of a monopoly. Complete the following table by indicating whether each attribute characterizes a perfectly competitive market, a monopolistically competitive market, both, or neither. Check all that apply. Attributes Perfectly Competitive Market Monopolistically Competitive Market Many sellers Easy entry Few sellers Price equals average total cost in the long run

Subjects