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Homework answers / question archive / If demand is given by P = 100 - Q, supply is given by P = 30 + Q and there is a negative externality of $10 per unit produced, then the socially optimal quantity is
If demand is given by P = 100 - Q, supply is given by P = 30 + Q and there is a negative externality of $10 per unit produced, then the socially optimal quantity is...
a.
65.
b.
35.
c.
70.
d.
30.
Given,
Demand (P) = 100 - Q
Supply (P) = 30 + Q
There is negative externality of $10
Hence,
Social Demand (P) = 100 - Q - 10 = 90 - Q
or
Marginal Social Benefit ( MSB) = 90 - Q
Marginal Cost (MC) = 30 + Q
Social optimality exist at MSB = MC
90 - Q = 30 + Q
or, 2Q = 60
or, Q = 60/2 = 30
Socially optimum quantity = 30 units
So, the correct option is D "30 units".
