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Assume that there are two producers - a fishery and a power plant. The first produces fish at a cost OF (QF, Qw) = 3Q%Q,

Assume that there are two producers - a fishery and a power plant. The first produces fish at a cost OF (QF, Qw) = 3Q%Q, where Q is the quantity of fish caught and Qw is the quantity of water polluted by the power plant. Imagine that we know that at the optimal allocation we have QF = 2 and Qw = 1. To restore efficiency the government should impose a tax on the power plant equal to 1 per unit of water polluted should impose a tax on the power plant equal to 4 per unit of water polluted should impose a tax on the power plant equal to 4 per unit of water polluted None of the above

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