Answered step by step
Verified Expert Solution
Question
1 Approved Answer
A manufacturing company that produces tires has the following production function and marginal product function The machine that molds the tires costs $100. Each unit
A manufacturing company that produces tires has the following production function and marginal product function
The machine that molds the tires costs $100. Each unit of raw rubber cost the firm $3. The firm sales each tire at a price of $50. The production process produces a waste that is dumped into a nearby river which kills fish. Because of the smaller fish population, this financially harms local fishermen. More specifically, for every unit of raw rubber the tire manufactory uses it reduces the profits of local fishermen by two dollars.
- Solve for the profit maximizing level of L . Does it correspond to the optimal value on your graph in problem a? [2 Point]
- What is the profit when is used? [1 Point]
- Solve for the socially optimal level of production . Does it correspond to the socially optimal production level on the graph you constructed in part d? [1 Point]
- How do the net social benefits differ between the profit maximizing level of production and the socially optimal level of production . (Hint: Net social benefits are given by ) [1 Point]
- How large should the tax be to incentivize the tire manufacture to produce at the socially optimal level ? [1 Point]
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started