Reference no: EM131635254

Question: The marginal private costs and the marginal private benefits of a firm producing fuel-efficient cars is represented in the following diagram (show the equilibrium P market, Q market). The government would like to increase the amount of fuel-efficient cars to be produced and sold to Q social. One way that the government can try to increase production of fuel efficient cars is by making them cheaper to produce, by subsidizing their production. Show, on the same graph, the amount of subsidy needed to increase the equilibrium quantity of fuel-efficient cars to Q social.