Question

Suppose that oil is perfectly divisible (you can buy non-integer quantities). The marginal cost curve is given by MC=1.5Q + 2. The demand curve is given by P =32 - 1.8Q, which gives MR=32-3.6Q In the most efficient outcome (which perfectly competitive markets achieve), P=MC. Solve the equilibrium price and quantity in that case. The most efficient equilibrium quantity is Blank 1. Calculate the answer by read surrounding text. . The most efficient equilibrium price is Blank 2. Calculate the answer by read surrounding text. . Now suppose that, for each unit of oil consumed, $6.74 worth of environmental damage is done. Solve the optimal Pigouvian tax (per unit) that would obtain the socially-efficient outcome where less oil is produced and sold. The optimal tax per unit is $ Blank 3. Calculate the answer by read surrounding text. .

Answer 1

Please find the answer in the attached image.