The figure shows the production of fertiliser by a perfectly competitive profit-maximising firm. Production of the good leads to pollution of the environment. This pollutionis an external cost to the firm. MC represents marginal cost as faced by the firm; I and II represent possible positions of the marginal social cost curve.Suppose that the government imposes a 'pollution tax' on the firm at a constantCosts and revenuerate per unit of output. Assuming that this firm is the only polluter in the industry,what effect will the tax have on the market price?- MCMove to £1IIMove to £2Remain at £3Move to £4Move to £5Q1Quantity of fertiliserQ2. Q3

Perfect competition is such a market structure where that are many buyers and many sellers. The good…

The figure shows the production of fertiliser by a perfectly competitive profit-maximising firm. Production of the good leads to pollution of the environment. This pollution is an external cost to the firm. MC represents marginal cost as faced by the firm; I and II represent possible positions of the marginal social cost curve. Costs and revenue Suppose that the government imposes a 'pollution tax' on the firm at a constant rate per unit of output. Assuming that this firm is the only polluter in the industry, what effect will the tax have on the market price? MC O Move to £1 II Move to £2 D Remain at £3 %3D O Move to £4 Move to £5 Q1 Q2 Q3 Quantity of fertiliser

The figure shows the production of fertiliser by a perfectly competitive profit-maximising firm. Production of the good leads to pollution of the environment. This pollution is an external cost to the firm. MC represents marginal cost as faced by the firm; I and II represent possible positions of the marginal social cost curve. Costs and revenue Suppose that the government imposes a 'pollution tax' on the firm at a constant rate per unit of output. Assuming that this firm is the only polluter in the industry, what effect will the tax have on the market price? MC O Move to £1 II Move to £2 D Remain at £3 %3D O Move to £4 Move to £5 Q1 Q2 Q3 Quantity of fertiliser

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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This is an end-of-chapter problem that I'm struggling with! thanks!
Note:The solution should not be hand written.
Air pollution creates a negative externality—a cost suffered by a third party as a result of an economic transaction. A standard solution to a negative externality is a Pigouvian tax, a tax that raises the marginal private cost of pollution emissions to the level of the marginal social cost. The socially optimal quantity of pollution emissions is then determined by the intersection of the marginal private benefit, or demand, curve and the marginal social cost curve. The article notes that "putting a dollar value on the benefits of cleaner air has been difficult." Assuming this problem has been resolved, in the accompanying diagram, move the endpoints of line Smarginal social cost to show the marginal social cost curve. Then move the line labeled "Tax" to show the amount of the tax needed to limit emissions to the socially optimal level.
Consider a lake found in the town of Center Barnstead, and then answer the questions that follow. The town has a campground whose visitors use the lake for recreation. The town also has a fish cannery that dumps industrial waste into the lake. This pollutes the lake and makes it a less desirable vacation destination. That is, the fish cannery's waste decreases the campground's economic profit. Suppose that the fish cannery could use a different production method that involves recycling water. This would reduce the pollution in the lake to levels safe for recreation, and the campground would no longer be affected. If the fish cannery uses the recycling method, then the fish cannery's economic profit is $1,500 per week, and the campground's economic profit is $1,800 per week. If the fish cannery does not use the recycling method, then the fish cannery's economic profit is $2,000 per week, and the campground's economic profit is $1,000 per week. These figures are summarized…
Consider a manufactured good whose production process generates pollution. The demand for the product is Q=100-3P. The market supply function is Q=P. The marginal external cost is MEC=2Q. What is the emissions tax that needs to be imposed to achieve the social optimum? Illustrate on graph What is the economic incidence of this emissions tax? In other words, what proportion of this tax will be paid by producers of this product and what proportion of the tax will be paid by consumers?
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