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{"ops":[{"insert":"8. Assume that a competitive firm sells it\u2019s output for a price of 16 dollars per unit and\nproducing q units of output costs the firm 1\/3q"},{"attributes":{"script":"super"},"insert":"3"},{"insert":" dollars. The firm\u2019s production process\npollutes a nearby river and total environmental damage caused is e = 3q \u2212 a where\na is the amount of pollution abatement effort. The firm\u2019s cost of abating a units of\npollution is 1\/3q"},{"attributes":{"script":"super"},"insert":"3"},{"insert":".\n\n(a) Find the firm\u2019s profit maximizing output quantity and the resulting amount of\nenvironmental damage in the absence of any regulation.\n(b) If the firm must pay a tax of $7 per unit of output produced, find the new profit\nmaximizing output quantity and amount of environmental damage.\n(c) Assume there is public backlash to the tax on output, so the government needs\nto determine what subsidy per-unit of abatement effort would replace the tax\nand yield the same environmental damage. What subsidy on abatement effort\nshould the government set?\n\n\n"}]}

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