Environmental Economics Question

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Question 4When peach canners process fresh peaches, they produce three products. The first, canned peaches, is sold in the market place; the others, liquid and solid wastes, are by-products that must be removed. The liquid is sometimes temporarily kept in holding ponds and then later released into a nearby stream or sewer. The liquid that is dumped into the steam represents a negative externality to downstream users. In the peach growing region, the marginal external costs of the canning process have been estimated as: MEC = 0.000043 Qwhere Q represents output of canned peaches in cases per week. The marginal social costs of canning peaches is: MSC = 2.00 + 0.0002 Q,and the demand for canned peaches is: P = 9.00 – 0.000243 Q.a. Determine the output of cases of peaches produced by the private market.b. Determine the socially optimal level of cases of peaches.c. Numerically compare the consumers’ surplus, producers’ surplus and environmental costs that arise under the market outcome and the social optimum.

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ABC University

private market

surplus and environmental costs

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