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FRQ analyzing- externalities in economics, please answer as soon as you can, thanks! Name: Period: Part 3- FRQ Practice: Complete the FRQ below PRICE (S)

FRQ analyzing- externalities in economics, please answer as soon as you can, thanks!

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Name: Period: Part 3- FRQ Practice: Complete the FRQ below PRICE (S) 13 12 Marginal Social Cost 7 Marginal Private Cost 4 Demand = Marginal Social Benefit Q1 Q2 QUANTITY OF GOOD X Marginal Revenue 5. The production of good X creates an externality. The following questions are based on the graph above, which shows the marginal revenue, marginal social benefit, marginal private cost, and marginal social cost associated with the production of good X. a) Is the externality positive or negative? Explain. b) Using labeling from the graph above, identify the socially optimal output. Explain how you determined your answer. i. Using labeling from the graph above, identify the unregulated firms' output. Explain how you determined your answer. ii. To produce the socially optimal output, indicate whether the government should tax or subsidize the firm. iii. Calculate the dollar value of the per-unit tax or subsidy. c) Suppose that good X is produced in a perfectly competitive industry. Answer each of the following. i. Using labeling from the graph above, identify equilibrium output in the absence of regulation. Explain how you determined your answer. ii. To produce the socially optimum output, indicate whether the government should tax or subsidize the firms in the industry ili. Calculate the dollar value of the needed per-unit tax or subsidy. Micro Problem Set 6-Part 2

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