Suppose the demand for widgets (MB) is given by P=100-2Q , and the supply curve (MCP) is given by P=10+0.50. The widget industry has a competitive market structure. The production of widgets generates air pollution and the resulting damages have been estimated to impose a marginal cost on the population given by: MCₑ = 0.5Q
Plot the supply and demand curves for widgets on a graph. Determine the marginal social cost curve (MCS) for widgets and plot on the same graph. Indicate the market equilibrium price, Pᴹ₁ , and quantity, Qᴹ₁ , as well as the socially optimal quantity of widgets, Q*.