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Two firms A and B face the following costs to reduce their level of pollution by the amount q: cA(q) = 2q^2 cB (q) = q^2 One unit of pollution generates a marginal damage of $2 to society.
a. With no public intervention, what level of pollution reduction will firms choose?
b. What is the socially optimal level of pollution reduction by each firm?
c. With a tax of $1 per unit of pollution produced, what level of pollution reduction will firms choose?
d. Which level of taxes restores efficiency? Explain.
e. Suppose public authorities prefer quantity regulation over taxes and decide to impose a maximum level of pollution equal to 3/8 to each firm. What is the welfare loss associated with this policy?
f. Discuss why trading pollution permits would allow to restore efficiency.
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The equilibrium rate of interest as determined in the loanable funds theory of interest will fall if:
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As the name monopolistic competition implies, a firms decision in this setting will in certain ways resemble _____________ and in other ways resemble___________?
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Suppose that each worker in the Foreign country can produce two cars or three TVs. Assume that Foreign also has four workers. Graph the production possibilities frontier for the Foreign country. What is the no-trade relative price of cars in Foreign?
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