Suppose that in the preceding problem drug producers invent another production process that discharges no waste and can be used at a constant cost of 10.6 cents per dose.
a. What will the price and output of the miracle drug be if the tax advocated in part (c) of the preceding problem is imposed?
b. What will the price and output be if the no-discharge process had a cost of 11.4 cents per dose?
c. Suppose that the production cost under the new process rises to 13 cents per unit and producers are forbidden to use the original waste-discharging process. What price and out-put will result? By the economist’s criteria, are there appropriate amounts of obesity cures and pollution? What is the deadweight loss, if any, that results? Give both numerical and graphical answers.

  • CreatedNovember 14, 2014
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