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3. Suppose that. the inverse demand curve for paper is P : 200 Q, the private marginal cost (unregulated competitive market supply) is MOP =
3. Suppose that. the inverse demand curve for paper is P : 200 Q, the private marginal cost (unregulated competitive market supply) is MOP = 80 + Q and the 111arginal harm from gunk is MOS = Q. a) What is the unregulated competitive equilibrium? Note that this is deter- mined by the intersection of the private 111arginaleost curve and the demand curve. b) What is the social optimum? What specic tax (per unit of output or gunk) results in the social optimum? Note that the socially optimum equilibrium is determined by the intersection of the social marginal cost curve and the demand curve. c) What is the unregulated monopoly equilibrium? Note that the monopolist produees output and sets priees where the marginal revenue is equal to the private marginal cost. (1) Does it make sense to regulate this monopoly? Why or why not
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