1 Externalities II Consider the market for private economics tutors in Davis. The market's inverse demand curve is p = 1600 - 50, with Q being the number of students receiving tutor per quarter and p being price per quarter. Economics tutors' private marginal cost curve is MCP = 100 + 50. Also assume that, because economics professors curve their classes, when one student improves her grade, it causes every other student to have a lower grade. This is a negative externality. Assume the marginal cost of curving is MCC Q. Now assume that one private economics tutor takes over the entire market because the tutor has a lower marginal cost than any other tutor. So the market has a monopoly. 1.5 What standard should the City of Davis set? Now suppose that instead of a standard the City of Davis wants to impose a specific tax on this market to ensure the socially optimal equilibrium. 1.6 What specific tax should the city of Davis set? Now assume that due to a policy change, economics professors start curving more strictly and the negative externality in the market for private economics tutors increases. 1 1.7 What would the marginal cost of curving need to be for the un-regulated monopoly equilibrium to be the socially optimal equilibrium