Question: The Pareto optimal solution involves each producer internalizing the external cost that they are imposing on others. Both the industry price and quantity will be
The Pareto optimal solution involves each producer internalizing the external cost that they are imposing on others. Both the industry price and quantity will be different than in the competitive equilibrium. In this case, what are the firms inverse and direct supply functions? Hint: add the internal and external cost functions vertically to get total social cost, then use that to determine marginal social cost. Below is a diagram showing the outcome that you need to demonstrate
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