The private marginal benefit associated with a product's consumption is PM B = 350 – 4Q and the private marginal cost associated with its production is PMC = 6Q. Furthermore, the marginal external damage associated with this good's production is MD = 4Q. To correct the externality, the government decides to impose a tax of T per unit sold. What tax T should it set to achieve the social optimum?

The private marginal benefit associated with a product's consumption is PM B = 350 – 4Q and the private marginal cost associated with its production is PMC = 6Q. Furthermore, the marginal external damage associated with this good's production is MD = 4Q. To correct the externality, the government decides to impose a tax of T per unit sold. What tax T should it set to achieve the social optimum?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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