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Suppose a firm faces a constant factor price w, its production function c(q, h) is differentiable and strictly convex, where q 2 0 is its
Suppose a firm faces a constant factor price "w, its production function c(q, h) is differentiable and strictly convex, where q 2 0 is its output level (product price p > 0), h is the level of negative externality it produces. The externality generated by the firm affects a consumer whose utility function is @(h)+w. Neither business nor consumer actions affect any market prices a) Show that, in the special case where h and q must be produced in fixed proportions, such that h(q) = aq, where a > 0, a government tax on the output of firms can achieve efficient results. The tax rate that the government should levy for how much
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