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Suppose marginal cost of abating X units of pollution is given by: MC(X) = 2X and marginal benefits are MB(X) = 6 - X when X 6 and 0 when X 6....
1. Suppose marginal cost of abating X units of pollution is given by: MC(X) = 2X and marginal benefits are MB(X) = 6 - X when X ≤ 6 and 0 when X > 6. Current pollution = 9.
a) What is the optimal level of pollution abatement, X*? How much pollution is remaining when X= X*? b) What is marginal cost, marginal benefit, and the level of total net benefit when X=X*?
b) What is marginal cost, marginal benefit, and the level of total net benefit when X=X*?
c) What is the total net benefit of a rule that bans pollution completely? What is the total net benefit of allowing pollution to stay at 9 without any regulation?
d) Suppose air pollution abatement in the U.S. is currently X* (that is, we currently have the ideal amount of air pollution given the costs and benefits of abatement). Suppose that next year people start spending less time outdoors. Do you think this would increase or decrease X*? Come up with your own example of a change in (a different) behavior that would have the opposite effect on X*. Explain your example.
