Externalities come up with an example of 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.

Find an example of positive externality in a localized case. Is the externality internalized or not? Discuss outcomes and support your statements with at least three reputable sources.

Requirements

The numbers are simple enough, and the answer not unnecessarily complicated

Linear MC function

Correctly identify the MR function

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

Come up with a problem/question based on the example of the ones we covered during lectures (see Bb) on one of the two topics listed below. It will have to contain all the required components for full grade.

II. The answer to the question you created, with graphs if required.