Suppose the marginal benefit for a chemical is given by MPB = 300-5Q, where quantityis measured in pounds. The market supply is given by MPC=5Q. Producing chemicals creates anegative production externality to the fishery downstream, and the social marginal cost of thisproduct is MSC = 18Q.
a.What is the equilibrium price and quantity in a competitive market?b.What is the deadweight loss from competitive market?c.If the chemical were banned altogether, what would be the deadweight loss?d.If property rights are assigned to the chemical company, what is the largest bribe that the fishery would be willing to give for the chemical company to cut the last unit of output?What is the smallest bribe that the chemical company would take for that last unit of output?
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