In each case, indicate whether the statement as given is true/false/uncertain and explain why. Points will be given for the explanation of your answer only. Write your answers as completely as possible.
1. If a polluting firm (for example, a steel producer) is also a monopolist in its output market, the appropriate pollution tax should be even higher than the standard Pigouvian tax in order to discourage both the firm’s pollution production and its monopolistic behavior.
2. In the case on an ambient pollution problem, where the government sets a target level of ambient concentration, a cost effective allocation of pollution is one where firms have the same marginal savings from emissions (or equivalently the same marginal cost of emissions reduction).