Question

AP MICROECONOMICS PRICE ($) 13 12 7 4 0 Marginal Social Cost Marginal Private Cost Demand = Marginal Social Benefit Q1 Q2 Q3 QUANTITY OF GOOD X Marginal Revenue 1. The production of good X creates an externality. The following questions are based on the graph above, which shows the marginal revenue, marginal social benefit, marginal private cost, and marginal social cost associated with the production of good X. (a) Is the externality positive or negative? Explain. (b) Using labeling from the graph above, identify the socially optimum output. Explain how you determined your answer. (c) Suppose that good X is produced by a profit-maximizing monopoly. Answer each of the following. (i) Using labeling from the graph above, identify the unregulated firm's output. Explain how you determined your answer.

          AP MICROECONOMICS

PRICE ($)
13
12
7
4
0
Marginal Social Cost
Marginal Private Cost
Demand =
Marginal Social Benefit
Q1 Q2 Q3
QUANTITY
OF GOOD X
Marginal Revenue

1. The production of good X creates an externality. The following
questions are based on the graph above, which shows the marginal
revenue, marginal social benefit, marginal private cost, and marginal
social cost associated with the production of good X.

(a) Is the externality positive or negative? Explain.

(b) Using labeling from the graph above, identify the socially optimum
output. Explain how you determined your answer.

(c) Suppose that good X is produced by a profit-maximizing monopoly.
Answer each of the following.

(i) Using labeling from the graph above, identify the unregulated
firm's output. Explain how you determined your answer.

AP MICROECONOMICS

PRICE ()
13
12
7
4
0
Marginal Social Cost
Marginal Private Cost
Demand =
Marginal Social Benefit
Q1 Q2 Q3
QUANTITY
OF GOOD X
Marginal Revenue

1. The production of good X creates an externality. The following
questions are based on the graph above, which shows the marginal
revenue, marginal social benefit, marginal private cost, and marginal
social cost associated with the production of good X.

(a) Is the externality positive or negative? Explain.

(b) Using labeling from the graph above, identify the socially optimum
output. Explain how you determined your answer.

(c) Suppose that good X is produced by a profit-maximizing monopoly.
Answer each of the following.

(i) Using labeling from the graph above, identify the unregulated
firm's output. Explain how you determined your answer.

Added by Rhonda C.

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