Suppose a firm generates a negative externality in the production of some good. The firm receives benefit MB=120 - .5Q and pays private marginal costs PC= 60+ .5Q. If the marginal damage from production of Q is given by MD=2Q, find the Pigouvian tax that will lead to the efficient level of output, Q*
A. t*=$20
B. t*=$40
C. t*=$70
D. t*=$110

Q&A Education