# SOLUTION: ECN 100 Economics Problems Set

Attached. Please let me know if you have any questions or need revisions.ECN 100 Problem set 41Externalities IIConsider the market for private economics tutors in Davis. The market’s inverse demand curve isp = 1600 − 5Q, with Q being the number of students receiving tutor per quarter and p being priceper quarter. Economics tutors’ private marginal cost curve is MCP = 100 + 5Q. Also assume that,because economics professors curve their classes, when one student improves her grade, it causesevery other student to have a lower grade. This is a negative externality. Assume the marginal cost5of curving is MCC = 2 Q.Now assume that one private economics tutor takes over the entire market because the tutor has alower marginal cost than any other tutor. So, the market has a monopoly.1.11.2Please find the un-regulated monopoly equilibrium of this market.Please find the socially optimal equilibrium of this market.1.3 Please draw this market, including the following curves— demand, marginal revenue,private marginal cost, and social marginal cost. Also label the following points—theunregulated monopoly equilibrium and the socially optimal equilibrium. Also pleaselabel axes and where curves cross axes.1.4What is deadweight loss in this market?Now suppose that the City of Davis wants to ensure the socially optimal equilibrium in this marketby imposing a standard.1.5What standard should the City of Davis set?Now suppose that instead of a standard the City of Davis wants to impose a specific tax on thismarket to ensure the socially optimal equilibrium.11.6What specific tax should the city of Davis set?Now assume that due to a policy change, economics professors start curving more strictly and thenegative externality in the market for private economics tutors increases.1.7 What would the marginal cost of curving need to be for the un-regulated monopolyequilibrium to be the socially optimal equilibrium?1.1 The perfectly competitive equilibrium is the point where the market demand is equal to privatemarginal cost.P = MC1,600 – 5Q = 100 + 5Q1,500 = 10Q150 = QSubstitute this value in demand function.P = 1,600 – 5Q= 1,600 – 5(150)= 1,…

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