Assume that the estimated marginal cost of a technology to purify water has the following form: MC
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Assume that the estimated marginal cost of a technology to purify water has the following form: MC = 2 + 2q. Assume that the estimated marginal benefit of 1 degree of cleaner water takes the following form: MB = 14 - 2q. Calculate the optimal number of units of cleaner water for a population. Calculate the optimal price to be paid for one degree of cleaner water. Assume that the true marginal cost is 8 + 2q and calculate the optimum quantity under the true marginal cost as well as the welfare loss under quantity and price coordination.
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