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Imagine a competitive market where the price is given by $10 and firm's marginal cost is given by MC = 0.8q, where q is the
Imagine a competitive market where the price is given by $10 and firm's marginal cost is given by MC = 0.8q, where q is the quantity. However, the production of this firm provides a positive externality which reduces the marginal cost to half. If the market price is still $10, what is the socially optimal level of production for the firm? What should be the government policy to take production to an efficient level? Graph and interpret your results
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