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The graph illustrates the market for tomatoes

Economics Dec 03, 2020

The graph illustrates the market for tomatoes. Suppose that the tomato grower uses a chemical to control insects and waste flows into the town's river. The marginal social cost of producing tomatoes is double the marginal private cost. If no one owns the river and the city introduces a pollution tax, what is the tax per tonne of tomatoes produced that achieves an efficient outcome? Draw a point to show the efficient quantity and the marginal social cost at this quantity. Draw an arrow to show the pollution tax per tonne at the efficient quantity that results in the efficient quantity of tomatoes.
Price (dollars per tonne) 360 MSC 320- 280- 240- 200- S 160- 120 1204 80- D 40- 360 07 0 10 90 100 20 30 40 50 60 70 80 Quantity (tonnes per month) >>> Draw only the objects specified in the question.

Expert Solution

At eqm

MSC = MB curve (demand curve )

So P*= 160, Q*= 40

Then tax = value of MEC ( marginal External cost) at socially effecient Equilibrium level

t*= (MSC- MPC) at Q*

= (160-80)

= 80

please see the attached file for the complete solution.

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