Question

A town produces solid waste. The below table shows the Marginal Cost and the Marginal Benefit to society.

Tonnes of Waste Abated	MC	MB
1	1000	4000
2	1500	3800
3	2000	3500
4	3000	3000
5	4500	2000
6	7000	200

1. Draw a diagram of the MC and MB

2. What is the socially optimal amount of waste to abate?

3. What is the net benefit to society of abating the socially optimal amount of waste?

4. What is the net benefit to society of abating the final tonne of waste if the hospital abates 6 tonnes? Explain if it is beneficial to abate 6 tonnes?

Answer 1

a)

Quantity	MC	MB
1	1000	4000
2	1500	3800
3	2000	3500
4	3000	3000
5	4500	2000
6	7000	200

b) Socially efficient amount of output occurs when MC = MB which occur when 4 ton of waste is abated.

c) At 4 tonnes of abatement, net benefit = MB - MC = 0

d) At 6 tonnes of abatement, net benefit = MB - MC = 200 - 7,000 = -6,800

e) It is not beneficial to abate 6 tonnes due to negative net benefit.