Use the accompanying table to answer the following questions.
Use the accompanying table to answer the following questions.
Quantity Private Cost Social Cost Benefit
1 $2 $4 $12
2 $6 $ 10 $22
3 $ 12 $ 18 $30
4 $ 20 $ 28 $36
5 $ 30 $ 40 $40
What is the external cost per unit of output?
What level of output will be produced?
What level of output should be produced to achieve economic efficiency?
What is the value to society of correcting the externality?
What level of tax would be appropriate to internalize the externality in exercise 1?
Suppose the following table describes the marginal costs and marginal benefits of waste (garbage)
reduction. What is the optimal amount of garbage? What is the situation if no garbage is allowed to be
produced?
% of Waste Eliminated Marginal Costs (millions of dollars) Marginal Benefit (millions of dollars)
10% 10 1,000
20% 15 500
30% 25 100
40% 40 50
50% 70 20
60% 110 5
70% 200 3
80% 500 2
90% 900 1
100% 2,000 0
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