4 The marginal benefit and marginal private cost curves for

4) The marginal benefit and marginal private cost curves for gas are given by the following functions: MB-90-Q MC 2Q What is the efficient level of output?

Solution

Solution:-

Marginal benefit equation is as follows -

MB = 90 - Q

Marginal private cost equation is as follows -

MPC = 2Q

Marginal external cost (MEC) = 6

Marginal social cost (MSC) = MPC + MEC = 2Q + 6

The efficient level of output is that level of output corresponding to which MB equals MSC

MB = MSC

90 - Q = 2Q + 6

3Q = 84

Q = 84/3 = 28

The efficient level of output is 28 units.