A firm sells fire alarms that create positive externality for the neighbors of people who

purchase them.

2. Use a correctly labeled demand and supply graph to show each of the following;

a. Demand, supply, and market equilibrium price and quantity, labeled Pe and Qe.

b. marginal private cost, marginal private benefit

c. Marginal social cost and marginal social benefit

d. The efficient level of output, labeled Qo

e. The size of the tax that would cause the firm to internalize the external cost and produce the efficient level of output.