Question 1, 2, 3 from the attached file
Question 4: Let MAC1 = 100- 10E and MAC2 =50-10E. Graph each function and compute the aggregate MAC curve. Let MD = 30E, compute the socially efficient equilibrium. For the equations given above, suppose the government sets the pollution level at four units. What are the net social costs of this policy?
Question 5: Suppose a technological change occurs that reduces the marginal costs of abatement for polluter 1 in the above equation to that of polluter 2. How does this affect the socially efficient level of pollution? Solve numerically and graphically.
1 Assignment 2 Economics 260 Instructions: This assignment is based on chapter 4 material. Hand in on Canvas 1. Suppose an industry has 12 firms, each with the following marginal (pri- vate) cost function MCi = 4Qi (i = 1, ..., 12) and the market demand function is QT = 50− 0.5P (a) Find the equation for the industry supply curve (b) Graph both supply and demand and find the equilibrium price and quantity. 2. Using the information in problem 1, but now suppose that each firm’s production causes external damage (pollution). The marginal external cost per firm is MECi = 2Q (a) What is the marginal social cost per firm (MEC + MC)? If the marginal external cost was taken into account by all the firms, what would be the supply curve? (b) Solve for the equilibrium price and quantities. Graph your results. (c) Using your results from problem 1, calculate the net welfare cost when firms DO NOT take the MEC into account (hint: graph the demand curve and the supply curves from 1 and 2 in a single graph; the answer comes from calculating the ”appropriate”area) 3. Suppose we have three people who have different willingness to pay sched- ules, which are A MWTP = 100−Q B MWTP = 110− 1.1Q C MWTP = 120− 1.2Q Further, the marginal cost of the good is MC = 10 + .5Q (a) If this good is a”public”good, aggregate the MWTP schedules and calculate the socially optimal quantity. What is each person’s MWTP for this quantity? (b) If this good is a private good (i.e. pizza), aggregate the MWTP in the appropriate manner and solve for the socially optimal (equilibrium) quantity and price. How much of the good does each person consume? 1