A coal fired power plant provides power to all of Melbourne: it burns coal to produce electricity, and consequently pollutes the air as a by-product. The power plant produces electricity (quantity expressed in millions kilowatt hours, kWh) at a total cost TC (Q)= 7Q2 + 40 Q The social cost of electricity production is 36Q2 The total benefit of electricity production for the city of Melbourne, which is also equal to the total benefit of the power plant, is TB (Q)=100Q-Q2 1) Calculate the socially optimum quantity of electricity traded 2) The Victorian government considers imposing a tax on electricity production in $ per million of kWh produced. What tax should it impose to reach the the socially efficient outcome (in $ per million kWh)? 3) Suppose that instead of taxation, the government tries to regulate quantities. What kind of direct regulation could the government choose to achieve socially optimal production

A coal fired power plant provides power to all of Melbourne: it burns coal to produce electricity, and consequently pollutes the air as a by-product. The power plant produces electricity (quantity expressed in millions kilowatt hours, kWh) at a total cost TC (Q)= 7Q2 + 40 Q The social cost of electricity production is 36Q2 The total benefit of electricity production for the city of Melbourne, which is also equal to the total benefit of the power plant, is TB (Q)=100Q-Q2 1) Calculate the socially optimum quantity of electricity traded 2) The Victorian government considers imposing a tax on electricity production in $ per million of kWh produced. What tax should it impose to reach the the socially efficient outcome (in $ per million kWh)? 3) Suppose that instead of taxation, the government tries to regulate quantities. What kind of direct regulation could the government choose to achieve socially optimal production

Microeconomics A Contemporary Intro

10th Edition

ISBN:9781285635101

Author:MCEACHERN

Publisher:MCEACHERN

Chapter17: Externalities And The Environment

Section: Chapter Questions

Problem 10PAE

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