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Problem 1: Price and Quantity Regulation. Cigarette producers have a PMC = Q and cigarette consumers have a P MB = 752Q. The marginal
Problem 1: Price and Quantity Regulation. Cigarette producers have a PMC = Q and cigarette consumers have a P MB = 752Q. The marginal damage per unit of cigarettes is AID = 15. a) What is the competitive market quantity? b) What is the socially efficient quantity? c) What price regulation that brings about the socially efficient outcome? What are the consumer surplus (CS), producer surplus (PS), and government revenue (GR) under this price regulation? d) What quantity regulation that brings about the socially efficient outcome? What are the consumer surplus (CS) and producer surplus (PS) under this quantity regulation?
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