3. Consider a perfectly competitive market for flu shots, a good which generates an externality. The...

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3. Consider a perfectly competitive market for flu shots, a good which generates an externality. The private marginal cost is given by PMC = 3q. The private marginal benefit curve is given by PMB = 100 - 2q. a.) What is the social marginal cost curve SMC? How do you know? Explain. b.) Find the market outcome, q*PRIV. c.) If the social marginal benefit curve is given by SMB = 120-2q, find the social optimum, q* soc d.) Graph this situation (including all 4 curves). How does it compare to q* PRIV and what does this say about the nature (positive/negative) and size of the externality? e.) What policy would you use to address this externality? How large does the policy have to be to move the market to the social optimum? f.) If the social marginal benefit curve is given by SMB = 120-q, find the social optimum, q*soc, Graph this situation (including all 4 curves). How does it compare to q* PRIV and what does this say about the size of the externality that is different from parte.)? 3. Consider a perfectly competitive market for flu shots, a good which generates an externality. The private marginal cost is given by PMC = 3q. The private marginal benefit curve is given by PMB = 100 - 2q. a.) What is the social marginal cost curve SMC? How do you know? Explain. b.) Find the market outcome, q*PRIV. c.) If the social marginal benefit curve is given by SMB = 120-2q, find the social optimum, q* soc d.) Graph this situation (including all 4 curves). How does it compare to q* PRIV and what does this say about the nature (positive/negative) and size of the externality? e.) What policy would you use to address this externality? How large does the policy have to be to move the market to the social optimum? f.) If the social marginal benefit curve is given by SMB = 120-q, find the social optimum, q*soc, Graph this situation (including all 4 curves). How does it compare to q* PRIV and what does this say about the size of the externality that is different from parte.)?

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a To find the social marginal cost curve SMC we first note that in a perfectly competitive market the private marginal cost PMC reflects only the priv... View the full answer