P P1 P2 P3 P4 P5 The following diagram represents a profit-maximising dairy farm operating in...

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P P1 P2 P3 P4 P5 The following diagram represents a profit-maximising dairy farm operating in perfect competition, where MPC is the Marginal Private Cost curve and AR is the Average Revenue curve for the dairy farm. Assume that the production of milk on the farm leads to pollution of the surrounding land area, but this pollution is an external cost to the dairy farm. (i) 0 (ii) Q1 (111) Q2 A Q3 MPC B AR Quantity of milk Identify which of the two curves above, A or B, represent the marginal social cost curve. [1] Determine the level of output that the firm will produce if it decides not to take any account of the damage to the surrounding land area. [1] Determine the level of marginal external cost at the level of output identified in part (ii). (iv) Determine the level of socially efficient output. [1] [1] [Total 4] P P1 P2 P3 P4 P5 The following diagram represents a profit-maximising dairy farm operating in perfect competition, where MPC is the Marginal Private Cost curve and AR is the Average Revenue curve for the dairy farm. Assume that the production of milk on the farm leads to pollution of the surrounding land area, but this pollution is an external cost to the dairy farm. (i) 0 (ii) Q1 (111) Q2 A Q3 MPC B AR Quantity of milk Identify which of the two curves above, A or B, represent the marginal social cost curve. [1] Determine the level of output that the firm will produce if it decides not to take any account of the damage to the surrounding land area. [1] Determine the level of marginal external cost at the level of output identified in part (ii). (iv) Determine the level of socially efficient output. [1] [1] [Total 4]

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Question i Curve A represents the marginal social cost curve Margina... View the full answer