A factory releases one unit of pollution for each unit of output produced. The marginal cost of production is given by M
Posted: Thu May 19, 2022 7:32 am
A factory releases one unit of pollution for each unit of output produced. The marginal cost of production is given by MC=2+Q, where Q is the number of units of output produced. The demand function for the product is given by Q=20-P. The marginal external cost (damage) from pollution is given by MEC=0.5Q.
a. What will be the equilibrium price and quantity if the market is left unregulated? [5 marks]
b. What is the socially optimal level of output?
c. Compute the deadweight loss due to the externality.
d. Compute the Pigovian per-unit tax on output that would result in the socially efficient level of output.
a. What will be the equilibrium price and quantity if the market is left unregulated? [5 marks]
b. What is the socially optimal level of output?
c. Compute the deadweight loss due to the externality.
d. Compute the Pigovian per-unit tax on output that would result in the socially efficient level of output.