The Food Processing Industry Involves the Canning of Fruit Products

Essay

The food processing industry involves the canning of fruit products, among other things, and the canning process produces canned goods and waste products. The manufacturer of one kind of fruit product produces an external cost for third parties. This external cost is expressed as:
MEC = 0.00005Q,
where MEC represents marginal external cost (dollars/unit), and Q represents cases produced per week. The marginal cost of production (supply), ignoring MEC, at the industry level is:
MC = 2 + 0.000175Q.
The industry demand for the product is:
P = 10 - 0.00025Q,
where price P is in dollars per unit.
a. Determine the output rate and price that would be established by profit maximizing firms.
b. Determine the efficient output rate and price.
c. Determine the cost to society of firms producing at the profit maximizing rate rather than at the efficient output rate.