Consider a Cournot oligopoly facing linear demand P(X)=1X and constant marginal costs c>0 (and/or increasing marginal cost
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Consider a Cournot oligopoly facing linear demand P(X)=1−X and constant marginal costs c>0 (and/or increasing marginal cost Cʹ(X)=cX). The social damage function is quadratic of the form D(E)=dE2/2. Emissions are proportional to output, where E=X.
(a) Determine the optimal emission tax.
(b) Suppose instead that the cost function is C(X,E)=(aX-BE)2/2B. Derive a formula for the second-best optimal tax rate.
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Based on the description in the question a We need to determine the optimal emission tax for the situation under Cournot oligopoly The social damage f...View the full answer
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Related Book For 
A Course In Environmental Economics
ISBN: 9781316866818
1st Edition
Authors: Daniel J Phaneuf, Till Requate
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