Find the socially optimal level of emissions

Reference no: EM132208282

Question: Consider a good for which the production process generates external costs. The marginal external cost function is MEC = 7E, where E is the amount of emissions produced. The emission pollution can be minimised at a cost. The marginal cost function of the minimising process is MCM = 37 - 5E. (For all solutions below, include graph if necessary).

a) Find the socially optimal level of emissions, and the optimal value of abatement costs and external costs.

b) If an emission fee were imposed on producers, what would be the deadweight social loss associated with setting the fee at 90% of the correct value?

c) If an emission standard were enforced, what would be the deadweight social loss associated with setting the standard at 110% of the correct value?

Reference no: EM132208282

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