Complete the following questions

Name University Course Instructor Date 1 Solve Either (Question a and Question b) OR (Questions c-e): 1 483638828896322Assume a Total Damage function of D = 7 q2, a demand function constant with price 110 and a supply function of TC = 4q2 + 5q + 10. 1 Find the Competitive Equilibrium quantity without any negotiations or other policy. Find the Pareto Optimal quantity as well. Are they same? Why do the welfare theorems fail to hold. P = 110 TC = 4q2 + 5q + 10. MC = dTCdq=8q+5 110 = 8q + 5 Solving for q 8q = 110 -5 Q = 1058=13.125 The competitive equilibrium quantity is 13.125 The pareto Optimal Quantity D = 72q2 MD = dDdq=7q MC + MD = 110 (8q + 5) + 7q = 115 15q = 105 q = 10515=7 The competitive equilibrium quantity is 13.125 units, while the Pareto optimal quantity is 7 units. They are not the same, because the competitive market ignores the externality caused by the damage function. The welfare theorems fail to hold because the market does not internalize the externality, leading to an inefficient outcome (overproduction) compared to the Pareto optimal level. 2 Assume the property rights belong to the firm. Find one sets of possible transfers with negotiations that would support an agreement to produce the Pareto Optimal Quantity. Explain the direction of the transfer and what the outcome would be without any negotiations. [A good answer likely has a well captioned figure that has both outcomes as well as a pair of labeled areas that correspond to the boundaries of the set of transfers.] If the property rights belong to the firm, it can negotiate with consumers or society to reach the Pareto optimal outcome. To align production with the optimal quantity (7 units), the firm must be compensated for the lost profits resulting from reducing output from the competitive equilibrium quantity (13.125). This compensation should account for the externality cost, which arises from the negative effects of overproduction. The externality cost is the difference between the marginal damage (MD) and the firm’s marginal cost (MC) at the competitive equilibrium quantity. In the absence of negotiations, the firm will produce at the competitive equilibrium quantity, ignoring the social damage. A transfer from consumers or society would bridge the gap between the firm’s marginal cost and the social marginal cost (MSC), incentivizing the firm to reduce output. A graphical representation would show the MC curve, MSC curve, and demand curve, illustrating the overproduction at equilibrium and the necessary compensation to reach the Pareto optimal quantity. 3 What is the Pigouvian tax that would have produced the same outcome in terms of quantity? A Pigouvian tax is a tax levied on the firm to account for the external cost of the negative externality (the damage). The tax should equal the marginal damage at the competitive equilibrium quantity, thus aligning the private marginal cost (MC) with the social marginal cost (MSC). At the competitive equilibrium quantity (13.125), the marginal damage is: MD = 7q = 7 x 13.125 = 91.875 The Pigouvian tax would be 91.875, which would raise the firm’s private marginal cost to the social marginal cost, causing the firm to reduce production to the Pareto optimal quantity of 7 units. 2 Congress is interested in regulating emissions of a hazardous pollutant. Economists at the EPA have estimated the marginal costs and benefits of aggregate emissions reduction to be: 4652365347688MB(Q) = 30 − 1 Q 4 MC(Q) = 6 + Q 4 What is the efficient level of pollution reduction? What tax would achieve the level of reduction, Q? What are the total benefits, total costs and total net benefits to society at the efficient point? MBQ=30-14Q MC(Q) = 6 + Q MB (Q) = MC(Q) 30-14Q=6+Q 30-6=Q+Q4 24=5Q4 Q=24 x 45=19.2 MC (19.2) = 6 + 19.2 = 25.20 Total benefits, total costs, and net benefits at the efficient point Q = 19.2 Total Benefit (TB) = ∫019.2 MB(Q)dQ MB(Q) = 30-Q4 TB = [30Q-Q28]019.2...