What is the market equilibrium quantity of coal to be minded

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ICA4 - Market-Based Policies

Show your work in the space provided. No credit (not even partial credit) will be given unless you show how you arrived at your answer. In order to get full credit when using diagrams/graphs, you must label everything in your graph.

The inverse demand curve for the coal industry is P = 725-110. The supply curve is P = 200 + 40. The marginal external cost (MEC) of coal mining is 100. Q is measured in tons of coal per year.

a) What is the market equilibrium quantity of coal to be mined?

b) What is the socially efficient equilibrium quantity of coal to be mined?

c) What is the Pigouvian (pollution) tax that would move the market to the efficient outcome?

d) What is the tax revenue if the Pigouvian tax you derived in part (c) is implemented?

Reference no: EM133950508

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