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Suppose each unit of the good produces one unit of emissions. MPC = 3Q and MWTP = 40 - Q are the Demand and Supply curves for the good.
Suppose each unit of the good produces one unit of emissions. MPC = 3Q and MWTP = 40 - Q are the Demand and Supply curves for the good. MEC = Q measures the negative external cost of the good in the Demand/Supply model, so MD = E measure the negative external costs in the MAC/MD model. Assume the MAC and MD curves are linear (similar to the in - class treatment). Find the TSC(E^SE). Here is the suggested method: First find Q^M and Q^SE so that you can relate those to E^MAX and E^SE. Then use the that information and the given MD function to figure out the MAC curve. Then find TSC(E^SE).
Please show all work including graphs. Thanks.
