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
The deadweight loss that is associated with a monopolisticallycompetitive market is a result ofa.price falling short of marginal cost in order to increasemarket shareb.price e
Human service interactions in terms of macro systems-communities and organizations. Empowerment is basically a process to assist people groups, families and communities, indiv
Consider a nation with an economic structure consistent with assumption of classical model. Assume that businesses in this country suddenly anticipate higher future profitabil
Assume that capital and labor both exhibit diminishing marginal returns, so that capital can be substituted for labor in the production process (and vice versa), but capital
a. If Mrs Siegal can only choose one alternative, and if she wants to maximize the most healthy days per dollar that she gets, which option will she choose?  b. If the price
Assuming that Country A has a comparative advantage in wheat and Country B in wine, which of the following is true? a. The price of wheat in country B falls when trade opens b
In the law of supply, I understand to produce more (Lola's Pizza) it will cost more (equipment, labor, depreciation value, etc.) but is there a point that is plateaus that a
After a two-year testing period, Pat prepared the patent application to patent the device, and then found that just a month earlier one of Pat's testing customers had patent