Describe a coasian solution to the externality problem
Course:- Macroeconomics
Reference No.:- EM13179066

Assignment Help
Assignment Help >> Macroeconomics

A paint factory produces paints, but in the process transmits chemicals into the soil below the factory. These chemicals taint the soil such that the farmer whose land abuts the paint factory property experiences a reduction in soil quality and hence crop output. Assume the paint company's marginal benefit (demand) curve for its output is the following:

300-Q. It's marginal cost of producing is as follows: MC = 20 + Q. The farmer experiences a reduction in farm profit that can be described with the following Marginal Damage curve: MD = 40 + 2Q.

1. What output level does the paint company choose?

2. What is the socially optimal level of output?

3. Describe a possible Coasian solution to the externality problem.

4. What corrective tax could the government set to achieve the socially optimal level of output from the paint company?

Put your comment

Ask Question & Get Answers from Experts
Browse some more (Macroeconomics) Materials
Let A[1..n] be an array such that the first n-n√ elementsare already sorted (though we know nothing about the remainingelements).Give an algorithm that sorts A in substantia
For this Assignment, select an arbitrary organization. You may choose one with which you are familiar, but you do not need to disclose its identity. Assume you are the IT se
Get Rich Company has to choose between two investment opportunities. Investment A requires an immediate cash outlay of $100,000 and provides after-tax income of $20,000 per ye
What effect would this event have on AD or AS, other things being constant? What would be the resulting effect on equilibrium price level? Explain. What will be the effect o
1. An objective summary of the article (author's main point/-s, ethical dilemmas, legal issues, etc.)--40% 2. Your personal input/suggestions as the concluding paragraphs--40%
TermCreate an eight- to ten-slide presentation about the uses and limitations of product labeling for public safety. You can use the information from your textbook, as well
Explain why competitive markets normally lead profit maximizing firms to make choices about resource use that lead to an "efficient" allocation of resources to the market?
A State and explain 5 factors which affect the foreign exchange value of the Irish currency (Euro). B Irish exports have risen, in recent years. Discuss the effects of this de