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6. (10 points) A competitive refining industry releases one unit of waste into the atmosphere for each unit of refined product. The inverse demand function for the refined product is Pd = 20 - Q, which represents the marginal benefit curve where Q is the quantity consumed when the consumers pay price Pd. The inverse supply curve for refining is MPC = 2 + Q, which represents the marginal private cost curve when the industry produces Q units. The marginal external cost curve is MEC = 0.5Q. (1) What are the equilibrium price and quantity for the refining industry? Are they social optimal? If not, what are the social optimum? (2) How large is the deadweight loss from the externality? Suppose the government imposes an emission fee of T per unit of emissions to achieve social optimum, what should the emission fee be? (3) If the government chooses to correct the externality differently, what could be the alternative choice(s)? Generally, in choosing among different policy instruments, what should the government be concerned with?

          6. (10 points) A competitive refining industry releases one unit of waste into the atmosphere for each unit of refined product. The inverse demand function for the refined product is Pd = 20 - Q, which represents the marginal benefit curve where Q is the quantity consumed when the consumers pay price Pd. The inverse supply curve for refining is MPC = 2 + Q, which represents the marginal private cost curve when the industry produces Q units. The marginal external cost curve is MEC = 0.5Q.
(1) What are the equilibrium price and quantity for the refining industry? Are they social optimal? If not, what are the social optimum?
(2) How large is the deadweight loss from the externality? Suppose the government imposes an emission fee of T per unit of emissions to achieve social optimum, what should the emission fee be?
(3) If the government chooses to correct the externality differently, what could be the alternative choice(s)? Generally, in choosing among different policy instruments, what should the government be concerned with?

6. (10 points) A competitive refining industry releases one unit of waste into the atmosphere for each unit of refined product. The inverse demand function for the refined product is Pd = 20 - Q, which represents the marginal benefit curve where Q is the quantity consumed when the consumers pay price Pd. The inverse supply curve for refining is MPC = 2 + Q, which represents the marginal private cost curve when the industry produces Q units. The marginal external cost curve is MEC = 0.5Q.
(1) What are the equilibrium price and quantity for the refining industry? Are they social optimal? If not, what are the social optimum?
(2) How large is the deadweight loss from the externality? Suppose the government imposes an emission fee of T per unit of emissions to achieve social optimum, what should the emission fee be?
(3) If the government chooses to correct the externality differently, what could be the alternative choice(s)? Generally, in choosing among different policy instruments, what should the government be concerned with?

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