Sub: Economics

Topic: Micro Economics

Question: Externalities.
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You are the manager of a paper mill and have been subpoenaed to appear before a joint session of the Senate Consumer Affairs and the Senate Environmental subcommittees. The Consumer Affairs Subcommittee is interested in your testimony about the pricing practices of your company because a recent news magazine reported that your markups are 250 percent. The Environmental Subcommittee will ask you to justify why the firm should not be charged a per-unit tax on the firm's output to compensate for the pollution it discharges into a major river. Devise a game plan for responding to the questions that will be raised in the joint session of the subcommittees.

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Sub: Economics

Topic: Micro Economics

The markups and the pollution tax are acting like tradeoff among them. If the consumer Affairs committee is asking the question to the manager means there should be some higher payoff (due to the higher production). And the pollution level will also be higher. And the environmental subcommittee will raise her question in this situation. So if there is a per unit tax, the manager will reduce production of output and this decreasing the output will lead to decrease the markups also due to the increasing the additional tax. So the manager will respond to the consumer affairs committee there is low level of pollution tax or no tax. And he will reply to the environmental committee there is a higher market price that’s why there is higher pollution

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