2. Consider the following market for a private good, where Anne and Beverly’s inverse demand curves...

2. Consider the following market for a private good, where Anne and

Beverly’s inverse demand curves are given by

PA= 500−Q

PB= 500−2Q

The marginal cost of this good is

M C= 2Q

(a) Calculate the market demand curve

(b) Depict this market graphically.

(c) Calculate the market price and quantity that will be produced,

assuming this market is perfectly competitive.

(d) Argue that this outcome is Pareto Efficient.

(e) Suppose instead that this good is a pure public good. Costs and

utilities are the same. What would the outcome of private provision of this good be in that case?

(f) What would the efficient level of production be in that case?

Expert Solution

Rahul Sunny answered 1 year ago

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