6. A paper mill discharges chemicals into a river that washes the shores of a downstream resort area. The private cost, social cost, and marginal benefit associated with the production of paper are given by the following equations: PMC = 5+Q, SMC = 10 + 2Q, and MB = 35 -0.5Q. a. Provide a labelled diagram to illustrate how the competitive free market will not produce the socially optimal amount of output. b. Illustrate the efficiency loss. C. Illustrate how a per-unit tax could be used to correct this problem.

6. A paper mill discharges chemicals into a river that washes the shores of a downstream resort area. The private cost, social cost, and marginal benefit associated with the production of paper are given by the following equations: PMC = 5+Q, SMC = 10 + 2Q, and MB = 35 -0.5Q. a. Provide a labelled diagram to illustrate how the competitive free market will not produce the socially optimal amount of output. b. Illustrate the efficiency loss. C. Illustrate how a per-unit tax could be used to correct this problem.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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