You have the following supply and demand curves for an industry: QSX = -100 + 3 * PX for PX >= $40 QDX = 300 – 2 * PXHowever, this industry causes pollution damage to third parties. Each quantity produced creates pollution that causes equal damage, such that the marginal external cost is a constant $20 per unit (MEC= $20).a) Calculate the price quantity combinations for both the perfectly competitive and the efficient solution. Graphically show both solutions as well. Make sure you label all curves and axes.b) What efficient tax would move the competitive market to the efficient solution?

Provided information: It is given in the question that- Equation of the supply curve- QSX = -100 + 3…

Answered: You have the following supply and…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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You have the following supply and demand curves for an industry:

Q_SX= -100 + 3 * P_X

for P_X >= $40

Q_DX = 300 – 2 * P_X

However, this industry causes pollution damage to third parties. Each quantity produced creates pollution that causes equal damage, such that the marginal external cost is a constant $20 per unit (MEC= $20).

a) Calculate the price quantity combinations for both the perfectly competitive and the efficient solution. Graphically show both solutions as well. Make sure you label all curves and axes.
b) What efficient tax would move the competitive market to the efficient solution?

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