Question: The private marginal benefit for commodity X is given by
The private marginal benefit for commodity X is given by 10 – X , where X is the number of units consumed. The private marginal cost of producing X is constant at $ 5. For each unit of X produced, an external cost of $ 2 is imposed on members of society. In the absence of any government intervention, how much X is pro-duced? What is the efficient level of production of X ? How much does society gain by moving from the inefficient to the efficient level of pro-duction? Suggest a Pigouvian tax that would lead to the efficient level. How much revenue would the tax raise?
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