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The demand for flowers is P = 240 – 2Q and the MC is MC = Q.

The demand for flowers is P = 240 – 2Q and the MC is MC = Q.

a) Find the competitive equilibrium in this market.

b) The production of flowers is associated with a marginal external cost equals to Q. Find the social marginal cost and socially optimal equilibrium and add them to your graph. Find and calculate the DWL associated with the competitive equilibrium.

c) The production of flowers is associated with a constant marginal external benefit of $60. Find the social marginal cost and socially optimal equilibrium and add them to your graph. Find and calculate the DWL associated with the competitive equilibrium.

d) What policy should government use to improve welfare in the flowers market? Explain your answer addressing welfare implications of your suggestion.

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