Question

Suppose powerplant emissions are linked to morbidity and mortality in humans who live downwind from the powerplant. Suppose in recent years the daily load of emissions into the environment has averaged 4.0 million tons. Also suppose that since the generation of electricity is an important public service the Environmental Protection Agency is reluctant restrict electricity generation. A recent study compiled by the Green Party, an environmental organization, determined that the marginal benefits (in $’s per million tons) of abating emissions by are:

MB = 100 – 25A

A represents abated emissions in millions of tons.

A) What level of pollution abatement do you think would be desired by the Green Party if they controlled environmental policies? What would be the dollar value of the total benefits of this level of emission abatement?

B) While the Green Party believes that these benefits suggest that emissions should be eliminated entirely, an electricity production group has compiled information on abatement costs. They claim that the aggregate marginal cost function for pollution abatement is:

MAC = 10 + 20A

Given the Green Party's marginal benefit function and the electricity producers marginal cost function, how many tons of emissions should be abated for the economically optimal solution?

C) What would the net social benefits be under the Green Party's solution in (A) above? What would be the net social benefits under an economically optimal solution?

Answer 1

Sol

A

given that MB = 100 - 25A

B

Given

MAC = 10 + 20A

C