Isi 2017 PEB

[vineetasharma]

The following information will be used in the next question
also. OIL Inc. is a monopoly in the local oil refinement
market. The demand for refined oil is
Q = 75 − P
where P is the price in Rupees and Q is the quantity, while
the marginal cost of production is
MC = 0.5Q
The fixed cost is zero. Pollution is emitted in the re-
finement of oil which generates a marginal external cost
(MEC) equal to Rs. 31 per unit. What is the level of Q
that maximizes social surplus?
(a) 50
(b) 29 1
3
(c) 17.6
(d) 44

[rddd]

solve by putting equal
demand= marginal cost + marginal external cost
trying solving this way u will get ur answer

[kanv93]

How do we solve the sequel question ?

Suppose the government
decides to impose a per unit pollution fee on OIL Inc. At
what level should the fee (in Rs./unit) be set to produce
the level of output that maximizes social surplus? You
may use the fact that the marginal revenue is given by:
MR = 75 − 2Q