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What is the pigouvian tax imposed on firms

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Reference no: EM132022512

Consider a competitive industry that extracts a valuable mineral from deep underground. The industry faces market demand for the mineral given by P = 200 - 2Q and extraction incurs a constant marginal private cost and average cost of 20. Suppose that the government realises that by extracting minerals the industry is seriously harming and contaminating underground aquifers. The marginal external cost imposed by the activity is equal to E = 3Q. What is the Pigouvian tax imposed on firms that pushes the industry to produce at the socially efficient level of output?

(a) 20

(b) 36

(c) 90

(d) 108

(e) 540

Please help me with this question. What is the answer and please provide explanation and working out please

Reference no: EM132022512

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