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Suppose the government wants to restrict the number of cars by issuing a limited number of marketable permits to produce cars. The inverse market demand curve for cars is p = 20,000 - 0.9Q, the marginal cost of producing cars is constant at $4,600, and the marginal pollution and congestion cost of cars is E(Q) = 400 + 0.1Q. What is the socially optimal output of cars? At what price would marketable permits to produce that number of cars trade?

Microeconomics, Economics

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