You are an industry analyst that specializes in an industry where the market inverse demand is P = 100 – 5Q. The external marginal cost of producing the product is MC External = 10Q, and the internal cost is MC Internal = 20Q.
a. What is the socially efficient level of output?
b. Given these costs and market demand, how much output would a competitive industry produce?
c. Given these costs and market demand, how much output would a monopolist produce?
d. Discuss actions the government could take to induce firms in this industry to produce the socially efficient level of output.