Question 2 Suppose that there are only two types of apples, Braeburn apples and Pink Lady apples. Initially, it is impossible to grow Pink Lady apples in Australia and no apples are imported from overseas. BB Apples is the only producer of Braeburn apples in Australia. In other words, it has a monopoly over the production and sale of Braeburn apples. The monopoly price of Braeburn apples is $6 per kilogram. (a) On a diagram illustrate the demand for Braeburn apples, the marginal revenue curve for BB Apples, the prot maximizing price for BB Apples and any deadweight loss that might exist in the market for Braeburn apples. If there is a deadweight loss, fully explain what this area represents. Due to climate change, it becomes possible to grow Pink Lady apples in Australia. Many farmers can grow Pink Lady apples. In fact, the market for Pink Lady apples is perfectly competitive and Pink Lady apples sell for $5 per kilogram. Further, Braeburn apples and Pink Lady apples are perfect substitutes. (b) How does the growing of Pink Lady apples in Australia alter your answer to part (a) of this question? Be sure to use appropriate diagrams and to explain any changes in the monopoly deadweight loss. (c) Scientists discover that Braeburn apples (but not Pink Lady apples) create a positive externality. In particular, growing Braeburn apples is good for birds and wildlife, but growing Pink Lady apples has no effect on birds or wildlife. The government estimates that the value of the positive externality associated with growing Braeburn apples is equal to $1 per kilogram. On a new diagram, show the socially optimal level of production of Braeburn apples. Will BB Apples produce the socially optimal level of apples? If so, why? If not, why not? Show on your diagram any deadweight loss associated with the production of Braeburn apples