The private marginal benefit associated with a product’s consumption is PMB = 350 − 4Q and...

The private marginal benefit associated with a product’s consumption is PMB = 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.

a. What is the market price and quantity? (6 points) b. What is the social optimum price and quantity?

b. 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?

Expert Solution

Rahul Sunny answered 7 months ago

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