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To Maximize Welfare in a Competitive Market That Has a Negative

question 34

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To maximize welfare in a competitive market that has a negative externality in production,government should tax a pollution-generating good at a specific tax equal to the marginal cost of producing the good.


Definitions:

Marginal Cost

The incremental expense associated with the production of an extra unit of a good or service.

Single Seller

A market structure where there is only one provider of a product or service.

Collusively Agreed

An arrangement or agreement among competing entities to limit competition, usually regarding pricing or market sharing.

Total Revenue

The complete revenue a company accrues from its sales activities or service offerings throughout a designated period.

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