The marginal private cost of steel production is given by MPC = 10 + 5Q, where...

The marginal private cost of steel production is given by MPC = 10 + 5Q, where Q is the quantity of steel produced in tons. The marginal benefit of steel production is given by the following, MB = 250 – Q.

Sketch a graph of the MPC and MB functions.
Assuming steel is sold in a competitive market what is the market price and quantity? Indicate this on a graph.
Suppose steel production results in a marginal external costs of MD = 2Q, what is the socially efficient level of steel output? Show this on your graph.
Suggest a tax that will force the steel producer to internalize the externality. How much revenue would the tax raise? Show this on your graph.
Why do prices fail to represent the opportunity costs of resources when externalities exist?

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Expert Solution

Rahul Sunny answered 1 year ago

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