20 The marginal benefit MB and marginal private cost MPC cur

20. The marginal benefit (MB) and marginal private cost (MPC) curves for the production of plastic bags is given as follows: MB = 200-Q In addition to private costs, there is a marginal external cost of $15 per unit of output. What is the efficient level of output? a. 0 b. 55 C. 92.5 d. 100 e. none of the above

Solution

Marginal benefit equation is as follows -

MB = 200 - Q

Marginal private cost equation is as follows -

MPC = Q

Marginal external cost (MEC) = 15

Marginal social cost (MSC) = MPC + MEC = Q + 15

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

MB = MSC

200 - Q = Q + 15

2Q = 185

Q = 185/2 = 92.5

The efficient level of output is 92.5 units.

Hence, the correct answer is the option (c).