Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Suppose that the demand curve for coal is described byP= $500Qwhere Q is tons of coal. The industry faces increasing marginal cost and has a

Suppose that the demand curve for coal is described byP= $500Qwhere Q is tons of coal. The industry faces increasing marginal cost and has a supply curve with the equationM C= 250 + 0.5Q. Coal mining causes harmful health effects. The external marginal cost of these externalities isEMC= 0.5Q.

(a) What is the socially optimal amount of coal that should be produced? At what price?

(b) At the private market equilibrium in part (b), shade the dead weight loss due to the externality on you graph.

(f) Now suppose a tax is imposed on the producers of coal equal to the external marginal costTax= 0.5Q. Does this tax cause deadweight loss or does it increase economic surplus relative to part (b)?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Business Law Today The Essentials

Authors: Roger LeRoy Miller

12th Edition

035703791X, 9780357037911

More Books

Students also viewed these Economics questions

Question

List and explain with examples the seven (7) HACCP principles?

Answered: 1 week ago

Question

6. How can a message directly influence the interpreter?

Answered: 1 week ago