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Unformatted text preview: 2 15 $ Q MC(Prod) MSC Tax on Fertilizer D = MWTP Q* = Q c MC(Prod) + t t Tax = MC(Poll) at socially optimal output. 16 $ Q MC(Prod) MSC D = MWTP Q* Q c MC(Prod) + t IMPORTANT: Tax does NOT equal MC(Poll) at original market output. 19 Restrict Pollution per Unit of Output Example: emission standards on cars. Advantages: Reduces pollution for any level of output. Reduces output. Problems: Need to know optimal pollution per unit of output. Cost of meeting standards is not necessarily minimum cost of pollution. 20 Trade-able Permits for Pollution Each firm is issued permits for an amount of pollution. 23 A Polluting Monopolist Firm may produce LESS output than optimal. Attempts to handle externality can WORSEN loss to society. MR D MC(Prod) MSC Q m Q *...
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