Let the market demand curve for electric insect zappers be P = 100 – Q/2 and let the supply be P = 20 + Q/2. Let the market for insect zappers be perfectly competitive. Assume that the insect zappers can sometimes kill some endangered moths, and that due to this negative externality, the production and use of insect zappers creates a $10 per unit marginal external cost. a. Find the equilibrium price and quantity of insect zappers. b. Write out the marginal social cost curve when the external cost is added in to the marginal cost of production curve (the supply curve). Find the efficient quantity of insect zappers and the price that consumers should pay for zappers for the efficient quantity to be an equilibrium.
