The marginal private cost of the production of stooges is described by the following equation, where...
The marginal private cost of the production of stooges is described by the following equation, where Q is the amount of stooges produced:
MPC = 8 + 0.8Q
Unfortunately, the production of stooges has a detrimental impact on the environment (technical term: the slap-stick effect) estimated by the following damage function:
MD = 1.2Q
The private market demand for the production of stooges is
described by the following equation:
MPB = 80 – 4Q
The government decides to set a Pigouvian tax to account for the environmental damages caused by stooges. What should the value of this tax be? What is the expected government revenue from the tax?
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