Consider a steel market. The marginal private cost function is written by MPC=40+2Q, where Q is the quantity of steel produced in the market. The marginal private benefit function is written by MPB=200-2Q, where Q is the quantity of steel consumed in the market. This market creates a negative production externality: the marginal external cost function is given by MEC=Q, where Q is the quantity of steel produced in the market. This market does not create any external benefit. All benefits and costs are measured in dollars. The government decides not to introduce the production quota. Instead, the government would like to impose a per-unit tax of $40. What is the total tax revenue from the Pigouvian tax?
Consider a steel market. The marginal private cost function is written by MPC=40+2Q, where Q is the quantity of steel produced in the market. The marginal private benefit function is written by MPB=200-2Q, where Q is the quantity of steel consumed in the market. This market creates a negative production externality: the marginal external cost function is given by MEC=Q, where Q is the quantity of steel produced in the market. This market does not create any external benefit. All benefits and costs are measured in dollars.
The government decides not to introduce the production quota. Instead, the government would like to impose a per-unit tax of $40. What is the total tax revenue from the Pigouvian tax?
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