Soybeans are produced and sold in a perfectly competitive market. The fertilizers used in soybean production generate a negative externality by seeping liquid contaminants into local rivers. (a) Draw a correctly labeled graph of the soybean market and show each of the following The marginal private cost, labeled MPC The marginal social cost labeled MSC (1) The marginal social benefit labeled MSB (iv) The market equilibrium quantity, labeled Qc (1) The socially optimal quantity, labeled as (vi) The area of the deadweight loss, shaded completely the more is between Qs and c-
(b) Assume the government sets a binding price for such that 0 What will happen to the quantity produced? 0 Will the price floor reduce the deadweight loss? Explain
(c) Assume instead of a price for the government decides to impose a lump sume What will happen to the socially optimal quantity? Explain
(d) Assume instead of a lump sum tax, the government decides to impose a per unit tax equal to the marginal external cost. 00) On your graph in part(a), indicate the new market equilibrium quantity, labeled ( What will happen to the deadweight loss? Explain c?
(e) if this market were a monopoly with identical cost conditions, would the monopoly's profit-maximizing quantity be greater than less than or equal to Qc?