Consider a country with 1 million identical consumers. Each consumer utility function is given by U(q,m) =
Question:
Consider a country with 1 million identical consumers. Each consumer utility function is given by U(q,m) = ln(q) + m - 2E, where q denotes the amount of GPUs that she consumes, m denotes the amount of $ consumed, and E denotes the total level of an environmental pollutant in the country. GPUs are produced by competitive firms with a constant marginal cost 1$/unit, and no fix or semi-fixed costs. Producing GPUS generates pollution: each GPU produced produces two additional units of the pollutant E.
A) At the Pareto optimal allocation, what is the level of GPU consumption for each consumer? In the rest of the problem, assume that consumers taken the total level of pollution E as fixed when making decisions.
B) At the market equilibrium, what is the level of GPU consumption for each consumer?
C) What is the deadweight loss at the market equilibrium? (approximate to the nearest trillion).
D) What is the magnitude of the optimal Pigouvian tax (in $/unit)? Assume that the tax is paid by the consumer.
Help with this question asap!!