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How large should a Pigovian tax be to achieve efficiency?
A Pigovian tax is a tax on any market activity that generates negative externalities.
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- A monopolist produces a certain good. The cost c for producing this good is given by c = 20q, whereq is the quantity produced. The (inverse) demand function for this product is given by p = 30 − 0.01q,where p is the price per unit of the product. We assume that the full produced quantity is sold. Thegovernment taxes the sales of the good and would like to maximize the received tax T .Suppose in first instance that the government introduces a tax of 4 monetary units per unit of theproduct sold. We determine how much the government then receives.A toy manufacturing from has demand for the product is given by the demand function Q= 500 - 3p. Where P is the price in dollars and q is the quantity sold per year. To sell 200 units, what price should the firm charge.Environmentalists in Tennessee brought suit against the Champion Paper Company of North Carolina for polluting the Pigeon River, which flows from North Carolina into eastern Tennessee. Tennessee claimed that the coffee-colored water smelled bad and would not support fishing or swimming. Environmentalists requested that the river be restored to its pristine state, or the water quality it had before the coming of industry. The Environmental Protection Agency (EPA) heard the suit and applied an efficiency standard. In other words, the EPA set limits on how much pollution the paper company could release (though this number was not zero). Adjust the following graph to indicate the negative externality. PRICE (Dollars per sheet) 2 1 10 9 Supply Demand 8 0 0 1 2 Demand 7 9 10 5 3 4 QUANTITY (Sheets of paper) Supply When the EPA imposes standards on the paper company, the quantity of paper produced will company will . The new equilibrium price is $ , and the price of paper from this per sheet…
- If government mandates P = ATC, are profits positive, negative, or zero? Compared to monopoly pricing, is deadweight loss smaller, larger, or the same size? If government mandates efficient pricing, are profits positive, negative, or zero? Compared to monopoly pricing, is deadweight loss under efficient pricing smaller, larger, or the same size? Compared to a mandate where P = ATC, is deadweight loss under efficient pricing smaller, larger, or the same size? Is this a natural monopoly?If the demand and supply of chinese coal are :Qd = 60 - 0.5PQs = -2 + 2PThen, what are the costs to the government of a subsidy?A town wants to build a zoo. The zoo has fixed costs of $3,000,000.00. The town has 120,000 people. It can either charge a tax or charge a price per visit. The demand function each person has is Q = 10 – P. If the town wants to break even on its fixed costs, what tax should be charged. What is the consumer surplus in this case. What price "P" should be charged to break even. What is the consumer surplus in that case? Which choice is better for the public?
- In Fruitland, strawberries are sold in 4-litre baskets to customers on a "pick-your-own" basis. There are 2 farmers who sell strawberries: Mickey and Kit. There are no costs of supplying strawberries for sale for either farmer, so each has MC = ATC = 0. Profit therefore is simply TR. Market demand for strawberries is given in the accompanying table. If the market were served by a monopolist, the quantity traded would be 125 baskets, the price per 4-litre basket would be $7.50, and the profit for the firm would be $937.50. If Mickey and Kit decided to collude, each would have an individual quantity supplied of 62.5 baskets and each would have profits of $468.75. Suppose Mickey and Kit agree to split the monopoly outcome. Kit, acting in her own self-interest, realizes that she can cheat and supply 87.5 baskets; when she does, Kit's profits are $525.00 and Mickey's profits are $375.00. Mickey decides to retaliate and increases his supply to 87.5 baskets too; when he does, Kit's profits…Suppose that the demand for good x is given by : P=100-8q Marginal cost of production is given by : P=10+2q MR is given by 100-16q What will the equilibrium quantity and price be in a competivite market? Calculate consumer, producer and total surplus. If we contrast this market to one in which good x is produced by a monopoly, what will be the quantity produced and the price each unit will be sold as? Calculate consumer, producer and total surplus. What will be the loss in total surplus due to a monopolist?Imagine a firm with a marginal abatement cost (MAC) function equal to: MAC = 25 - 5E. The government introduces a cap-and-trade policy and grandfathers the firm 2 permits initially. Assuming the market price of permits is $5, the firm will spend a total of $___ in order to buy permits.
- Is there a free rider problem (market failure) associated with education in the United States and how can it be correctedIf a monopoly hires lobbyists who successfully argue for legal changes favorable to the monopoly, this is an example ofA monopolist demand function is given by; P=Q2 - 10Q + 28 and cost function C=Q2 . If the firm is causing a pollution to the society valued at MC=3. Solve for the social level of output and price. What should be the tax level?