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University of Waterloo
ECON 201
Corey Van De Waal

devicesclass androduct lastownMC ypthe their in toprivate using their privateas a bCgunder perfectly LeftC if there are n identical CdiscussedbetweenMC weMRthatollutant resultinMRMCLefttotheirowndevicespdifferenceF dis thinking of imposing a quota on aulated a quota exampleAn insightful the be environmental damage or some quota was appropriate because if the Psituationnot experiencing a DWL due to the quota youe iePdithesituationthatwediscussedinthelastclassthecompetitive conditions at Pfirms in the industryMC to determine optimal firm output levelsThis is the firm would produce xIndustry output is nxOf course the firm considers only their private marginal costs when determining their output level Lecture 15show ond the scope of our analysis in this course it ood with a toxic tog xrightSexample Droduces a ppgpg y puseful Ca Ais nxRecall at the end of last class we calcstudent has asked me What if the market produced more x there mightother externalityThen society is but rather a gainthisisausefulexampletoshowyouthedifferencebetweenprivateMCandthisof their production processWhile this question is beybelongs in an environmental or costbenefit analysis framework I think that social MCSo lets suppose that the government market that CPPerfect ppunder BCCsocial marginalSpointBpointSx ut level is xppandxand private marginal costsSPP atthan the private marginal cost age caused by the toxic emissions If firms were to use MCoccuratPoccurcosts when determining their output level then the socially desirable equilibrium would The firms outcompetition and each representative firm makes zero economic profitsNoteMCprofits 2FFFnormalprofitsnormaldxxPPMRdMRdMRMCMCmakes ATCATCfirm SATCATCCCAxMCxSBxNow remember that under perfectly competitive conditions the representativefirmmakesrepresentativeNow suppose the social MC is higherbecause society must repair the damcreated by this industry say SOCSCPPPPP
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