Y7

3. A competitive rening industry produces one unit of waste for each unit of rened product. The industry disposes of the waste by releasing it into the atmosphere. The inverse demand curve for the rened product is given by p = 24 Q. The private marginal cost curve for rening is given by M C':0 : 4+Q, while the marginal external cost (marginal cost of pollution) is given by M06 : 0.562. (a) Find the competitive market outcome (price and quantity) for the rened product when there is no correction for the externality. (b) Find the socially optimal level of output (taking into account the negative externality) and, using the result, calculate the deadweight loss due to the negative externality in (a). (c) Suppose that the government imposes an emissions fee of $t per unit of emissions. How large should the emissions fee be if the market is to produce the socially optimally level of output