Question

Suppose the marginal cost of abatement for a airborne pollutant is MC= 4X, where X is measured in tons, and the marginal benefit of abatement is 500 - X. The maximum abatement (reducing pollution to zero) is XMAX= 500.

a) Graph the MC and MB curves and show the efficienct level of abatement X* on the graph.

b) Calculate the efficient level of abatement X*

c) Suppose there is no abatement (X=0, which implies no actions are made to remove pollution and we all deal with it) Calculate the deadweight loss.

D) If the government restricted the total amount of pollution to 350 tons (so abatement would be 150), would that be efficient? If not, is it too much pollution or too little? Calculate the total waste in dollars relative to the efficient level.

Answer 1

a)

X	MC	MB
0	0	500
10	40	490
20	80	480
30	120	470
40	160	460
50	200	450
60	240	440
70	280	430
80	320	420
90	360	410
100	400	400
110	440	390
120	480	380
130	520	370
140	560	360
150	600	350
160	640	340

b. The efficient level ox X is where MC=MR=400 and X =100

c. Deadweight loss = 0.5*(500-400)*100 = 5000

d. With the restriction of pollution to 350 tons, is an inefficient level which would lead to increased cost of 600, so the total waste in dollars which is an extra increased cost would be 250.