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Equilibrium And Socially Optimal Price And Quantity In The Presence Of Externalities: An Analysis Of The Computer Memory Chip Market

This Assignment Answers document evaluates externalities in the memory chip industry. Get it today!

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Equilibrium and Socially Optimal Price and Quantity in the Presence ofExternalities: An Analysis of the Computer Memory Chip MarketConsider a perfectly competitive industry producing a special type of computer memory chip, wherethe demand andsupply functions are given as:•Demand: Qd=7,000−5PQ_d = 7,000-5P•Supply: Qs=−2,000+10PQ_s =-2,000 + 10PIn addition, the production of each chip creates a pollution cost of $0.10 per unit.1.Determine the equilibrium price and quantity in the absence of any externalities (pollutioncosts).2.Analyze the impact of the pollution cost on the socially optimal price and quantity.3.Draw a diagram showing the market demand and supply curves, and indicate both theequilibrium price and quantity as well as the socially optimal price and quantity.4.Discuss the implications of the pollution cost on market efficiency and explain how thesocially optimal price and quantity are derived.Requirements:•Provide a clear explanation for determining the equilibrium price and quantity, as well as thesocially optimal price and quantity.•Include a graph showing both the market equilibrium and the socially optimal price andquantity.•Discuss how the pollution cost affects the market outcome.•Word count: 600–800 words.

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