Answered: 5. (External Costs) Use the data in the…

5. (External Costs) Use the data in the table below to answer the following questions. a. What is the marginal external cost of production?

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter16: Information, Risk, And Insurance

Section: Chapter Questions

Problem 18RQ: What are some of the metrics economists use to measure health outcomes?

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Question

5. (External Costs) Use the data in the table below to answer the following questions. a. What is the marginal external cost of
production? b. What level is produced if there is no regulation
of the externality? c. What level should be produced to achieve economic
efficiency? d. Calculate the dollar value of the net gain to society
from correcting the externality.

Marginal
Private Benefit
(demond) ($)
Marginal
Private Cou
Marginal
Social
Cost (S)
Quantity
(wupply) ($)
1
10
2
4
2
5
3
6
4
7.
10
11
10
12
10
11
13

Expert Solution

Step 1

We know that,

$M a r g i n a l S o c i a l \cos t = m a r g i n a l p r i v a t e \cos t + m a r g i n a l e x t e r n a l \cos t$

Using this equation we can calculate for marginal external cost since we are given the marginal social cost and the marginal private cost.

Thus, the table will look as follows:

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