Steve’s paper factory is polluting a local river and the following information is provided on its demand, output, and cost conditions. Use the chart of information below to answer questions 9, 10, and 11 that follow. QuantityMSB=MPBMPC MSC 1 $70 $10$40 2 60 2060 3 50 3080 4 40 40100 5 30 50120 6 20 60140 9)What is the profit maximizing output level (Q) and profit maximizing price (P) of the firm? A)Q=2, P=$20 B)Q=3, P=$50 C)Q=4, P=$40 D)Q=5, P=$50 Answer is C 10)If the government were to tax the firm to force it to internalize its external damages, what level should the government set the per unit tax at in order to completely remove the inefficiency caused by the firm’s profit maximizing behavior? A)$50 per unit. B)$40 per unit. C)$20 per unit. D)$10 per unit. Answer is B 11)If the government gives the paper factory 2 tradable pollution permits at no charge, which allows the factory to produce 2 units of output (each permit is worth one unit of output), and the pollution permits sell in a competitive market for $10 per permit, what should Steve do? A)buy one additional permit. B)buy two additional permits. C)sell one of its existing permits. D)sell two of its existing permits. Answer is A For question 9 i figured that MSB=MPB has to equal MPC and be less then MSC. That is how i arrived at a quantity of 4 I am not sure how to arrive at answer for questions 10 and 11. I am unsure the reasoning behind the answer. Any help would really be appreciated. Thank You
Economics - 1 Answers
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I actually have the exact same question about Steve's paper factory haha.
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