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 7:59 am
A factory releases one unit of pollution for each unit of output
produced. The marginal cost of production is given by MC=3+Q, where
Q is the number of units of output produced. The demand function
for the product is given by Q=30-P. The marginal external cost
(damage) from pollution is given by MEC=0.6Q.
a. What will be the equilibrium price and quantity if the market
is left unregulated?
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.
produced. The marginal cost of production is given by MC=3+Q, where
Q is the number of units of output produced. The demand function
for the product is given by Q=30-P. The marginal external cost
(damage) from pollution is given by MEC=0.6Q.
a. What will be the equilibrium price and quantity if the market
is left unregulated?
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.