ExternalitiesSolutions

ExternalitiesSolutions - Solutions of Review Questions Q1 a...

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Solutions of Review Questions Q1. a) Max X P x X C X X = 63 : Max Y P Y Y C Y Y = 185 . 139 : 5 ; 544 : 55 . b) Max X;Y P x X + P Y Y C X C Y X = 51 and Y = 185 is 756 : 05 imposes on the second. With the merger, the externality is internalized. c) Find the tax amount which equals the precise amount of external harm that X pro- duction causes. Tax is $12 per unit of X e¢ cient level of output, but the government may not be able to estimate the true cost of the government may respond more to political incentive than economic costs. Q2.
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ExternalitiesSolutions - Solutions of Review Questions Q1 a...

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