The above figure shows the market for fertilizer. When fertilizer is applied to lawns, it runs off into neighboring streams and ponds, killing fish and creating an external cost

a) What is the equilibrium price and quantity of fertilizer in an unregulated, competitive market?
b) What is the efficient quantity of fertilizer?
c) Suppose government imposes a tax equal to the marginal external cost. What is the equilibrium price paid by consumers and the equilibrium quantity after implementation of the tax?
d) At the output level in part (c), how much is the tax?
e) How much tax revenue does government collect?
f) What is the deadweight loss borne by society if the externality is left uncorrected?

a) The equilibrium price is $1,000 a ton and the equilibrium quantity is 6 tons per day.
b) The efficient quantity is 4 tons per day.
c) The price paid by consumers after the tax is $1,200 a ton and the equilibrium quantity is the efficient quantity, 4 tons per day.
d) The tax is $400 a ton.
e) The government collects $1,600 a day in taxes.
f) The deadweight loss with no government action is $600 a day.