Question

Consider a profit maximizing firm whose total cost function is given as TC=Q2 +

20Q, consumers of the firm’s products derive benefits from the good according to the

function MB=500 – 12Q. Production of the product has negative effects on the

environment approximated at Ksh. 300 per unit.

(i) Determine the efficient level of output for the firm without government intervention

Answer 1

Finding Q with the social cost of 300

$MSB= MSC$

$500-12Q = 300$

$12Q=200$

$Q = \frac{200}{12}$

$Q= 16.67$

This is the efficient output without government intervention