Steel producers can choose among the following five production techniques. Suppose that the market price (and social cost) of ordinary inputs is 1 and that the social cost of each unit of SO2 emitted is 10.
Technique Per-unit input requirements

ordinary inputs (K) 28	emissions (SO2) 4	A
B	31	3
C	37	2
D	46	1
E	58	0

a. Calculate the social cost of each technique. [Hint: social cost should reflect the cost of emissions as well as the production costs.] What production technique minimizes the social cost per unit of steel production? What is the amount of this social cost? Suppose that the government introduces a tax on emissions at the efficiency-maximizing rate.
b. Draw a diagram with supply and demand curves. Indicate the marginal social and marginal private costs of steel production without any regulation. What is the efficiency maximizing tax rate? Indicate the marginal social and marginal private costs of steel production under the emissions tax. Indicate the effect of the tax on the price and output of steel.

Answer rating: 100% (QA)

a Glculate social Cort off each techniqu... View the full answer