Question:Suppose the factory Afro-Puffs Inc. produces wigs. As a
by-product of this wig production, they also...
Question
Suppose the factory Afro-Puffs Inc. produces wigs. As a
by-product of this wig production, they also...
Suppose the factory Afro-Puffs Inc. produces wigs. As a
by-product of this wig production, they also produce dangerous
emissions of toxic gases (as a result of the strong glue used to
hold the hair in place). The De-Lite car factory, down the road,
experiences a negative externality from this production process.
Suppose that the supply curve (private marginal costs) for the wig
factory is 4 X = (8/5)P - 8, and it faces a market demand
of 3 Xd = 45 – 3 (P/2). The
marginal damages caused by the production of wigs can be written as
2 X = 2 P - 1.
(a) Find the equilibrium price and quantity in the market for
wigs.
(b) Find the socially optimal level of wigs and the corresponding
price.
(c) How much should the wig factory be taxed per wig?