Suppy: P= 2Q+10 Demand: P = 220-Q Suppose the production of creates pollution re
ID: 1228816 • Letter: S
Question
Suppy: P= 2Q+10Demand: P = 220-Q
Suppose the production of creates pollution released into the air.the marginal cost to society is P=2Q+40.
a. What is the competitive amount of tire produced?
b. What is the pareto optimal amount of tire produced?
c. What tax should government put on tires to achieve therareto optimal amount of tire? d. How much of this tax do consumers pay? How much ofthis tax do firms pay? Suppy: P= 2Q+10
Demand: P = 220-Q
Suppose the production of creates pollution released into the air.the marginal cost to society is P=2Q+40.
a. What is the competitive amount of tire produced?
b. What is the pareto optimal amount of tire produced?
c. What tax should government put on tires to achieve therareto optimal amount of tire? d. How much of this tax do consumers pay? How much ofthis tax do firms pay?
Explanation / Answer
a.) in a competitive market, firms are price takers, andessentially they have to set P=MC, and quantity supplied equalsquantity demanded. So just plug in the equations for thesupply and demand in the market to find the competitive quantity.(Q = 70, set supply equal to demand) b.) Remember, a pareto optimal point is a point at which you cannot make someone better off without making someone else worseoff. So, to find it you have to take into account ALL ofsociety. So this time, you need to factor in the marginalcost to society. (Q = 60, set society's cost equal to demand) c.) the tax should be set at a level that will shift supply in sucha way that it aligns with the marginal cost to society. Taxesessentially increase input costs - so think about the costsrepresented by the supply curve. At Q = 0, we can find thefixed costs, because even if they don't produce, the firm(s) stillhave a fixed cost. So, look at it that way and compare thesupply curve to the curve that represents the marginal cost tosociety. d.) sorry, i don't have time, but i'll try to come back to this
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