A competitive fertilizer market has many small firms. The inverse demand function for fertilizer is p = 40 - 2Q, where Q is a ton of fertilizer and p is the price per ton of fertilizer. The market supply curve, the sum of marginal private cost curves of all firms, is MC^P = Q + 4. The fertilizer industry is a major source of water pollution and the marginal external damage, MC^X caused by the industry to the communities nearby is $6 per ton of fertilizer produced.

Suppose you are working for the environmental protection department of the provincial government and your department is concerned with the pollution created by fertilizer production. You are assigned the task of determining what tax / charge should be levied on the fertilizer producers to control pollution.

1. Create a spreadsheet with column headings for output Q, price p, private marginal cost MC^P, marginal cost of pollution MC^X, and social marginal cost MC^S = MC^P + MC^X. Fill in the spreadsheet for Q = 1, 2, 3, ........, 20.
2. Determine the equilibrium output and price in the competitive market if firms do not have to pay for the pollution they create.
3. Determine the socially optimum amount of fertilizer.
4. Determine the optimal tax.