(Answered) In a market for a dirty good the inverse demand function is

Economics

In a market for a dirty good, the inverse demand function is given by p = 100 - y, and the private marginal cost of production is given by MC = 10 + y. The pollution generated by this industry creates external damages given by the constant marginal external cost of 2 dollars.

(1) Find the competitive equilibrium without regulation (Hint: p = MC)

(2) Find the socially optimal output(Hint: p = MC + 2)

(3) Determine the Pigovian tax that would result in a competitive market producing the socially efficient output

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