Question
The City Council again wants to reduce total emissions down to 2 tons of smoke per day. This time the City Council sets a tax
The City Council again wants to reduce total emissions down to 2 tons of smoke per day. This time the City Council sets a tax of $Tper day on each ton of smoke emitted. How large will T have to be to reduce total emissions down to 2 tons of smoke per day? Specifically, what is the smallest whole dollar tax on each ton of smoke emitted that will guarantee that total emissions fall to 2 tons per day? Under this tax, what production process will each firm choose? If the revenue collected from taxing emissions is used to offset other taxes, then what will be the total cost to society of this policy?
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