inthe dry cleaning scenario you are given the demand function Q=500-Pand the marginal private...

in the dry cleaning scenario you are given the demand function Q=500-P and the marginal private MPC= 50+Q you are also given an MEC=Q. fist calculate the price (PM) and output (Qm) that would result in free market condition. next provid socially optimum price(P*) and quantity (Q*) if the socially optimal price and quantity prevail, what is the pollution outcome?

Expert Solution

In private market equilbrium

PMB = PMC

500-Q=50+Q

450= 2Q

Qm = 225,

Pm = 500-225= 275

.

In Socially effecient Equilibrium

PMB = SMC = PMC + MEC

500-Q = 50+Q+Q

450= 3Q

Q*= 150

P*= 500-150= 350

Rahul Sunny answered 2 years ago

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