Answer to Question #240801 in Economics for Daakyehene

Question

4. The marginal cost of a corn farmer in Dorman Ahenkroh has been estimated by a team of agricultural economists from UENR as P=10.0+ 0.075Q. The team also estimated the marginal benefits of corn consumption in the community as P= 42.0-0.125Q; where P is price of corn (C/tonne) and Q is the quantity of corn produced (measured in tonnes).

a. Determine the equilibrium quantity and price of corn in this market. 

b. Assume the application of chemicals on the farm generates some external cost to the nearby fish pound, estimated at 0.05Q. What is the social optimal corn production level if this harm is internalized?

c. Graph the marginal benefit and marginal costs curves and estimate the deadweight loss due to the externality

Answer 1

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