Option 1

The market for Easily-Obtainedeum is perfectly competitive. However, its marginal social benefits exceed its marginal private benefits.

(a) Graph the market for Easily-Obtainedeum, labeling the marginal private benefit (MPB), marginal social benefit (MSB), marginal private cost (MPC), and marginal social cost (MSC).

(b) What type of market failure does Easily-Obtainedeum suffer from? Explain.

(c)Shade the deadweight loss, if any.

(d) The intersection of the MSC and the MSB occurs at a price of $50 and a quantity of 2,000 units. The MPB curve intersects 2,000 units at $10. The market without government intervention clears at $30 and 1,000 units. The MSB curve intersects 1,000 units at $70. Calculate the deadweight loss of this market failure.

(e) What is the per-unit cost of the externality?

(f) Without intervention, would the firm's total revenue at the socially optimal quantity be higher or lower than its total revenue at market equilibrium? Explain.

(g) What type of government intervention could achieve allocative efficiency in this market? Explain.