Companies producing toilet paper bleach the paper to make it

Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environment damage. The diagram to the right illustrates the situation in the toilet paper market. Suppose the government wants to use a Pigovian tax to bring about the government wants to use a Pigovian tax to bring about the efficient level of production.

Solution

Unit tax will be the vertical difference between MPC & Marginal Social Cost (MSC), where Marginal Benefit curve intersects MSC at price P2. Consumers pay price P2 and producers receive price P0.

So, unit tax = P2 - P0

Correct option (A).