Suppose the marginal (external) damage by pollution is given by MD = 300 + 5Q, where Q is the quantity supplied in the m

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Suppose The Marginal External Damage By Pollution Is Given By Md 300 5q Where Q Is The Quantity Supplied In The M 1 (205.16 KiB) Viewed 137 times

Suppose the marginal (external) damage by pollution is given by MD = 300 + 5Q, where Q is the quantity supplied in the market. The (private) cost and benefit are described by MC = 100 + 2Q and MB = D – 2Q. Assume D is unknown. = = = (a) Suppose D = 1,000. Solve for the optimal quantity. [1 mark] (b) Calculate the tax that would be necessary for the equilibrium quantity to be the optimal quantity. [1 mark] (c) Based on the result from part (a), the government introduces a cap-and-trade system to allow the optimal quantity of pollution to be produced. If D = 900, calculate the deadweight loss associated with having the wrong quantity. [1 mark] (d) Based on the result from part (b), the government introduces a tax to allow the optimal quantity of pollution to be produced. If D=900, calculate the deadweight loss associated with having the wrong tax level. [1 mark] (e) If D is not exactly known, is a cap-and-trade system or a tax likely to give better results? Explain why. [1 mark]