Assignment task: Externalities
Now assume that one private economics tutor takes over the entire market because the tutor has a lower marginal cost than any other tutor. So now the market has a monopoly. But assume that the demand and marginal cost curves stay the same.
1. Please find the un-regulated monopoly equilibrium of this market.
2 Please find the socially optimal equilibrium of this market.
3 Please draw this market, including the following curves- demand, marginal revenue, private marginal cost, and social marginal cost. Also label the following points-the un- regulated monopoly equilibrium and the socially optimal equilibrium. Also please label axes and where curves cross axes.
4 What is deadweight loss in this market? Now suppose that the City of Davis wants to ensure the socially optimal equilibrium in this market by imposing a standard.
5 What standard should the City of Davis set? Now suppose that instead of a standard the City of Davis wants to impose a specific tax on this market to ensure the socially optimal equilibrium.
6 What specific tax should the city of Davis set? Now assume that due to a policy change, economics professors start curving more strictly and the negative externality in the market for private economics tutors increases.
7 What would the marginal cost of curving need to be for the un-regulated monopoly equilibrium to be the socially optimal equilibrium?