Externality FRQ 2017
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a) Identify the monopolists:
i) profit maximizing quantity *
1 point
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ii) profit maximizing price *
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b) what information in the graph indicates that there is a negative externality? *
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c) Identify the socially optimal quantity. *
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d) In the case in which the government imposes a per-unit tax equal to the marginal external cost, identify each of the following.
i) The dollar value of the tax, using the price labels from the graph *
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ii) The profit-maximizing quantity associated with the tax *
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e) Given the monopoly facing the negative externality, would the deadweight loss increase, decrease, or stay the same as a result of imposing the per-unit tax? Explain. *
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