Author Question: If an average cost pricing rule is imposed on the firm in the figure above, the deadweight loss will ... (Read 132 times)

Tirant22 · **on:** Jun 29, 2018

If an average cost pricing rule is imposed on the firm in the figure above, the deadweight loss will be

A) zero.
B) 150.
C) 50.
D) 250.

Question 2

Suppose the market for aluminum is perfectly competitive and unregulated. If aluminum factories emit pollution, the marginal social cost of aluminum is less than the market price. True or false? Explain.

What will be an ideal response?

nikmaaacs · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

C

Answer to Question 2

The statement is false. Pollution is an external cost, and marginal social cost equals marginal private cost plus marginal external cost. In an unregulated competitive market, the market price equals marginal private cost. As a result, the marginal social cost of aluminum is its market price, which equals its marginal cost, plus the marginal external cost of pollution. So the marginal social cost of aluminum is higher than the market price.