Speaking of bacon, demand for bacon can be represented as P = 65 – 0.02Q. The constant private marginal cost for the firms in the market producing the bacon is $12 per unit. As it turns out, the industry creates runoff from the pig operations causing $7 in external damages to the area for every unit of bacon produced

 

c. Suppose that this market was not highly competitive, but in fact, was a monopoly market. If the firm was maximizing its profit, how much would it product? What would the price be for bacon? (Assume the monopolist won’t compensate for any external damage caused by its production.) Q = ____________________ P = _____________________

d. How does the monopoly outcome compare (part c) to the socially optimal outcome (part b)?

e. Is one outcome (from part d) clearly preferred over the other? Why or why not?