Question

Suppose that the mathematical functions representing benefits and costs of water quality policy were estimated as:

MSB = 40 – 0.8A MSC = 10 + 0.2A TSB = 40A – 0.4A2 TSC = 10A + 0.1A2 where A is the percentage of pollution abatement and the benefits and costs are measured in thousands of dollars.

Answer each of the following showing your mathematics and providing an economic explanation for each of your solutions. a. Determine the range of abatement within which water quality policy achieves positive net benefits. b. Find the efficient level of abatement.

Answer #1

Problem 2: Suppose that the benefits and costs of water quality
policy have been estimated as follows:
MSB = 40 – 0.8A MSC = 10 + 0.2A TSB = 40A – 0.4A2 TSC = 10A +
0.1A2,
where A is the percentage of pollution abatement and the
benefits and costs are measured in thousands of dollars.
a. Determine the range of abatement within which policy achieves
positive net benefits.
b. Find the efficient level of abatement.

Suppose a local policy group is trying to decide how
much abatement to pursue. The estimated market marginal social
benefits and market marginal abatement costs in dollars are
expressed as follows, where A equals units of pollution abated: MSB
= 200-4A
MAC_MKT = A
a. Assuming zero enforcement costs (MCE = 0) , what is
the efficient level of pollution abatement?
b. What is the welfare cost of ignoring pollution
(meaning that the policy group does not pursue any
abatement)?...

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