When kryptonite is produced, a cloud of toxic smoke is emitted that has negative health effects on nearby residents. Each ton of kryptonite produced increases residents’ health care costs by $15 (in other words, the external marginal cost is $15). The demand for kryptonite is Q _D  = 100 – P and supply is Q _S  = P - 20 where Q is in tons and price is per ton.

a). Without considering the external marginal cost, what is the equilibrium price and quantity in the perfectly competitive market for kryptonite?

b). Taking into account the external marginal cost of $15 per ton, what is the socially optimum quantity to be produced in this market?

c). What size tax should the government impose (all else equal) to correct for the externality?

d). Comparing the market equilibrium with no tax (part a) to part c (with the tax), calculate the change in each of the following: consumer surplus, producer surplus, deadweight loss, and government tax revenue.