Consider a market for paper. Suppose demand (in metric tons) as
a function of price (in pounds per metric ton) is given by Q =
8000–20P and that the marginal private cost of paper production is
£250 per metric ton. Suppose further that noise is generated in the
production of paper in direct proportion to the amount of paper
produced. The estimated damage to the local community (as measured
by their MWTP to eliminate the noise) is £100 per metric ton of
paper produced.?
(a) Suppose the government wants to implement the socially
optimal level by introducing a per-unit tax on coconut oil
production. Determine tc, the level of tax (in pesos per liter)
that achieves this goal
(b) What will be the competitive equilibrium price after the tax
computed in part (a) is put in place
Consider a market for paper. Suppose demand (in metric tons) as a function of price (in pounds per metric ton) is given
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