Calculate efficient size of a corrective tax per car battery

Reference no: EM132198020

Question: Suppose the market for car batteries is a perfectly competitive market, but that the production of car batteries creates external costs from water pollution. Recall that in a perfectly competitive market, the supply curve is part of the industry's marginal private cost curve, and that the demand curve is the marginal (social) benefit curve.

SMB = 220-.2Q

PMC = 40 + .2Q

EMC = .06Q

SMC = 40 + .16Q

a. Calculate the price and quantity at the industry's free -market equilibrium

b. Calculate the quantity and price that consumers would pay at the efficient rate of production when SMB=SMC.

c. Calculate the efficient size of a corrective (Pigouvian) tax per car battery.

d. Calculate the size of the deadweight loss at the free-market equilibrium.

Reference no: EM132198020

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