Externalities

Question 1

How do firms maximize profit when left alone?

Answer 1

1.) Get marginal profit
2.) set MP = 0
3.) Solve for prof max output

Question 2

How to reach a socially optimal outcome in externalities?

Answer 2

1.) Merger or buyout which combines the profit function of the two
2.) Solve for the simultaneous equations to find quantities

Question 3

How to find the amount of bribe paid for externalities?

Answer 3

1.) get the difference of the natural amount less the bribe
2.) Find the amount of lost profit by getting the max profit conditions and the difference of past profit to profit with bribe
3.) Get the profit of the other firm with the bribe as part of their function of X
4.) Maximize and use the computed value of output to plugin to profit function
5.) Get profit less the bribe then maximize and solve for the bribe

Question 4

In tragedy of the common scenario, how many firms will enter until profits are zero condition?

Answer 4

Average product = Cost

Question 5

In tragedy of the common scenario, what number of firms will maximize profit?

Answer 5

MP = C