-A paper mill dumps waste into a lake used by a catfish farmer. The table above shows costs and benefits arising from the production of paper.
a) Draw the paper mill's marginal private cost curve, the marginal social cost curve, and the marginal social benefit of paper curve.
b) What is the efficient level of paper production? If no one owns the lake and there is no regulation of pollution, what is the quantity of paper produced per week? Illustrate the deadweight loss in your figure.
c) If the government introduces a Pigovian tax, what is the tax per ton of paper produced that achieves an efficient outcome? What is the amount of the tax?
d) If the catfish farmer owns the lake, how much paper is produced per week and what does the paper mill pay the farmer per ton? Explain you answer.
e) If the paper mill owns the lake, how much paper is produced per week? Explain.
f) Compare the quantities of paper produced in (c) and (d) and explain the relationship between these quantities.
Correct Answer:
Verified
View Answer
Unlock this answer now
Get Access to more Verified Answers free of charge
Q422: A common resource is used efficiently if
Q423: One way of overcoming the problem of
Q424: In the case of an external benefit
Q425: For a common resource, the marginal private
Q426: For a common resource, the marginal private
Unlock this Answer For Free Now!
View this answer and more for free by performing one of the following actions
Scan the QR code to install the App and get 2 free unlocks
Unlock quizzes for free by uploading documents