A polluting firm’s marginal benefit of releasing pollution is MB g = 100−2⋅g, where g is tons of air pollution released into the atmosphere and MBg is its marginal benefit from releasing pollution, in dollars per ton. The marginal external costs of its pollution are given by MEC g=100 +g, where MECs is the external costs to society, also in dollars per ton.
(a) If the firm chooses its pollution level ignoring the marginal external costs, how much pollution will there be?
(b) What is the socially optimal level of pollution?
(c) If you were to design a Pigouvian (unit) tax per unit of pollution emitted by the firm, in order to get it to reduce its pollution emissions, what would the magnitude of this tax be?