Come up with a problem/question-based on externalities. It needs to be a positive externality for a single producer, whose production benefits a neighbor. The MC function must be a linear function of Q (MC increasing as Q increases), total revenues also linear. Assume the externality to be a fixed amount per unit produced. Compare outcomes without internalization of the externality and with the internalization. Graph MC, MR, and MSB with the internalization of the externality (Marginal Social Benefit, MSB), area of profit pre and post internalization. Discuss how that could be achieved.

Come up with an answer to the problem/question you created, with graphs if required.

Requirements:

Graph the Linear MC function

Correctly identify the MR function

Correct graph and labeling of MC, MR, MSB with internalization (Marginal Social Benefit, MSB), and outcomes.