Suppose that an industry emits a chemical that pollutes ground water.Without considering the effects of the pollution,the industry has a marginal private cost curve of MPC = Q+30.The market demand curve is ,while the marginal social cost curve is MSC = 2Q + 30.What level of emissions fee would achieve the socially optimal level of output?

Question

Suppose that an industry emits a chemical that pollutes ground water.Without considering the effects of the pollution,the industry has a marginal private cost curve of MPC = Q+30.The market demand curve is  ,while the marginal social cost curve is MSC = 2Q + 30.What level of emissions fee would achieve the socially optimal level of output?

Quizplus · Accepted Answer

The socially optimal level of output is where MSC intersects with market demand, which is Q = 35. At this level, the marginal cost to society of producing an additional unit of the good equals the marginal benefit to society. To achieve this level, the industry should be charged an emissions fee equal to the difference between the MSC and MPC at Q=35, which is $10. Therefore, the answer is D.

Suppose That an Industry Emits a Chemical That Pollutes Ground