You are a monopolist selling widgets. You face costs of C(Q) = 10 + 2Q^2
Suppose you face the following market demand: Q(p) = 3000 - 2p.
(a) What price will you charge? How many widgets will you sell?
(b) Suppose that a policy group claims that private costs do not equal social costs. They say that social marginal cost = 3Q. If you use SMC instead of PMC, what price will you charge? How many widgets will you sell?
(c) In this situation (the one in (b)), are you generating a negative externality? Discuss (in two sentences or less) how the government might get you to make decisions based off of SMC (in this particular situation)?