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A firm produces a good q and receives a price p = 10 for the good....

A firm produces a good q and receives a price p = 10 for the good. The marginal private cost of producing the good is MC = 2q. The production of each unit causes marginal external damage of 2 monetary units. Instead of a tax, the government subsidizes production with 2 monetary units per unit of production. How high is the efficiency loss of production with subsidies compared to the socially efficient production level?

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Rahul Sunny answered 1 year ago
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