Derive integrals that define total social Benefits and total social costs for herd sizes under the market model (q(m)) and the social planner model (q(s)).
Derive the first and second-order conditions to determine optimal herd size under market conditions and under social planner conditions (q(m) and q(s), respectively).
Evaluate the effect of ignoring external costs on herd size and prices.

Derive the total social benefits, total social costs, and net social benefits when the market is at social outcomes(q(s)).

 

2. The market for milking cows is illustrated below. It is commonly-believed that animal feeding operations, such as feedlots and dairies, create external costs when the manure from these facilities enters waterways, degrading water quality and gases from the manure enter the atmosphere contributing the GHG emissions. I will leave it to you and lecture to further explore this topic via the internet. Demand: p(q) = 3500-15q Supply: p(q) = 500+45q %3D Assume that the external cost is $3 per milking cow