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The private marginal benefit associated with a product’s consumption is PMB = 360 – 4Q and the private marginal cost associated with its production is PMC = 6Q. Furthermore, the marginal external damage associated with this good’s production is MD = 2Q. a. How many more units of this product will the free market produce than is socially optimal? b. What is the deadweight loss associated with the externality? c. To correct the externality, the government decides to impose a tax of T per unit sold. What tax T should it set to achieve the social optimum?

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M91709832

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