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Unformatted text preview: 2) Suppose that the private marginal benefit for commodity X is given by MB private = 10 - X, where X is the number of units consumed. The private marginal cost for producing X is constant at MC private = $5. For each unit of X produced, a constant external cost of $2 is imposed on the children of society. a) In the absence of any government intervention, how much X is produced? b) What is the Pareto efficient level of production of X? c) What is the value of deadweight loss if society ignores this externality situation? d) Calculate and show how a tax could be used to lead to the efficient level of production. e) Does your tax lead to an actual Pareto improvement in this market? Briefly, why or why not? f) How much revenue would the government raise with this tax? Econ 313 - Wissink - Fall 2005 PS#9 XtraQ (NOTE WE ARE JUMPING TO PS#9) DUE: by 5:00pm on Friday Nov 18, hand in during class or at the TAs office by 5:00pm...
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- Fall '06