Posted: December 12th, 2016

What level of taxation would generate the socially efficient level of the good

Suppose that the demand for a chemical is given by Q=100 2P, where the quanity is measured in pounds. The market supply is given by MC=5. Assume that the marginal external damage of this product is $3/unit
a) What is the equilibrium price and quantity of this good without government intervention?
b) What level of taxation would generate the socially efficient level of the good?