A paper mill dumps waste into a lake used by a tilapia farmer. The paper millâ€™s...

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Economics

A paper mill dumps waste into a lake used by a tilapia farmer.The paper millâ€™s marginal private cost function of producing atonne of paper is represented by: MPC = 5 + Â½ Q and the marginalbenefits can be represented by: MSB = 65 â€“ Q. The tilapia farmerâ€™scosts from the pollution can be represented by: MEC = Â½ Q.
Sketch the paper mill's marginal private cost curve, themarginal social cost curve, and the marginal social benefit ofpaper curve.
What is the efficient level of paper production? If no one ownsthe lake and there is no regulation of pollution, what is thequantity of paper produced per week? Illustrate the deadweight lossof the no-regulation level of production in your figure.
If the government introduces a tax to correct the externality,what is the tax per tonne of paper produced that achieves anefficient outcome?
If the tilapia farmer owns the lake, how much paper is producedper week and what does the paper mill pay the farmer per tonne?Explain you answer.
If the paper mill owns the lake, how much paper is produced perweek? Explain.
Compare the quantities of paper produced in (d) and (e) andexplain the relationship between these quantities.

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3.6 Ratings (488 Votes)

ABMSCMPCMEC505Q05Q5QEfficient outcome is where MSCMBC5Q65Q2Q60Q30 efficient outcomeIn absence of regulationThe market equilibriumAt MPCMBS505Q65QQ601540marginal external cost MEC at marketequilibrium054020Deadweight See Answer

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