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Please provide detailed solution, with step by step. Preferentially done on a pa

ID: 1097311 • Letter: P

Question

Please provide detailed solution, with step by step. Preferentially done on a paper and scanned

(i) Consider a static model. Suppose that inverse demand is 10 - q, firms are competitive with constant average = marginal costs C, and pollution-related damages (arising from output) are q + ½ beta q^2, with beta > 0 What is marginal damage? (ii) What is the socially optimal level of production and consumer price, and what is the Pigouvian tax?? (iii) How does the Pigouvian tax change with beta? (iv) Provide the economic explanation of this relation.

Explanation / Answer

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