Air travel is represented by the following marginal benefits (MBp) and marginal cost (MCp)
functions.
MBP (q) = 450 −2q
MCP (q) = 75 + 3q
Air travel creates multiple negative externalities including noise and air pollution. The pollution it creates can be described by the following marginal externality cost function:
MCE (q) = 45 + q
(a) Graph the market for air travel including private marginal cost, marginal benefits, and the externality resulting from the pollution. Make sure to label all aspects of the graph including axes and equations for full credit.
(b) Calculate the producer and consumer surplus in both social optimum and private optimum, as well as any deadweight loss created in either scenario.
(c) Is there a role for the government to play here? Why or why not? Explain your thinking.
(d) If the government chooses to play a role, what options can it take to mitigate the negative externalities? Which options do you think would be the most effective?

Answer rating: 100% (QA)

Cost Benefit 450 LA 420 340 300 240... View the full answer