Answer to Question #117364 in Finance for EUCABETH

Question #117364
A monopolist demand function is given by; P=Q2-10Q+28 and cost function; C=Q2. If the firm is causing a pollution to the society valued at MC=3, solve for the social optimal level of output and price. What should be the tax level?
1
Expert's answer
2020-05-21T11:17:41-0400

The social optimal quantity is estimated by equating the price to be equal to the marginal cost.

Therefore:




The social optimal level is therefore, 5 units.


The optimal price is:

Or


At social optimum level, there will be no taxation instead the government should instead give subsidies to the monopolist.



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