How will this affect the firm’s profit maximizing use

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Assume that a firm burns coal to produce electricity. The relationship between the amount of coal burned and the electricity produced is given below. T (= Tons burned) 0 10 20 30 40 50 60 70 80 EL (= KW generated) 0 50 95 135 170 200 225 245 260 a) Coal costs $10 per ton. A KW of electricity sells for $4. At what level of output should the firm choose to operate if it wants to maximize its profits? Show your work. b) What will the firm’s total profits be from generating electricity at this level of output (assuming no other costs than coal)? Show your work. c) Suppose that the government decides to impose a tax on coal of $2 per ton to reduce the use of coal in electricity generation. How will this affect the firm’s profit maximizing use of coal and output? d) What is the advantage and the disadvantage of placing a tax on the burning of coal to reduce global warming?

Reference no: EM13147669

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