The EPA determined the presence of a public health and ecological damage externality cost in dollars of MEC=0.02Q associated with Q units of nitrogen oxides output of a chemical process per month. There was no evidence of external benefit. The marginal social benefit was estimated as MSB=50-0.4Q and the marginal social cost as MSC=2+ 0.4Q
What is the competitive solution?
What is the socially conscious solution?
If you start with the competitive solution (Q=?) and you want to assess a Pigouvian tax equal to the externality, how much would that tax be?
Theoretically, What other policy alternatives to the Pigouvian tax exist? Which alternative do you prefer? Why?