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1.Suppose a perfectly competitive market is composed of 100 identical sellers (price-takers).Each individual seller faces the following private marginal costs of production: Quantity 1 2

1.Suppose a perfectly competitive market is composed of 100 identical sellers (price-takers).Each individual seller faces the followingprivate marginal costsof production:

Quantity 1 2 3 4 5 6 7

Marginal Cost 50 40 60 80 100 120 140

a.If the price of the good is $100, how many units would this firm produce?How many would be produced in the market?

b.If the price of the good is $120, how many units would this firm produce?How many would be produced in the market?

c.If the price of the good is $140, how many units would this firm produce?How many would be produced in the market?

d.Suppose the table below gives the points along the market demand curve for this good.

Price 180 160 140 120 100 80

Quantity Demanded 300 400 500 600 700 800

Given all the information above, what will be the equilibrium price and quantity in this perfectly competitive market?

e.Now suppose that each unit produced by these firms creates waste which negatively affects others in the economy by an amount equal to $40 for each unit produced.

If firms in this market considered the social costs of production when deciding output, rather than the private costs, what would be the equilibrium price and quantity?

f.How does this price and quantity compare to the outcome when only private costs were considered?

g.List 2 ways the government could get these firms to consider the social costs of production when deciding their output levels.

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