Two types of consumers (workers and retirees) share a community with a polluting cheese factory. The pollution is nonrival and nonexcludable. The total damage to workers is p² where p is the amount of pollution and the total damage to retirees is 3p². Thus marginal damage to workers is 2p and marginal damage to retirees is 6p. According to an analysis by consulting engineers, the cheese factory saves 20p - p² by polluting p, for a marginal savings of 20 - 2p. a. Find the aggregate (including both types of consumers) marginal damage for the public bad. b. Graph the marginal savings and aggregate marginal damage curves with pollu- tion on the horizontal axis. C. How much will the cheese factory pollute in the absence of any regulation or bargaining? What is this society's optimal level of pollution?
Two types of consumers (workers and retirees) share a community with a polluting cheese factory. The pollution is nonrival and nonexcludable. The total damage to workers is p² where p is the amount of pollution and the total damage to retirees is 3p². Thus marginal damage to workers is 2p and marginal damage to retirees is 6p. According to an analysis by consulting engineers, the cheese factory saves 20p - p² by polluting p, for a marginal savings of 20 - 2p. a. Find the aggregate (including both types of consumers) marginal damage for the public bad. b. Graph the marginal savings and aggregate marginal damage curves with pollu- tion on the horizontal axis. C. How much will the cheese factory pollute in the absence of any regulation or bargaining? What is this society's optimal level of pollution?
Principles of Microeconomics
7th Edition
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter10: Externalities
Section: Chapter Questions
Problem 5PA
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Step 1: State the given information
VIEWStep 2: a) Find the Aggregate Marginal Damage
VIEWStep 3: b) Graph the marginal savings and aggregate marginal damage curves
VIEWStep 4: c) Determine the level of pollution to be made by cheese factory & society's optimal level
VIEWStep 5: d) Find the aggregate marginal willingness to pay for abatement
VIEWStep 6: e) Find the firm's marginal cost of pollution abatement
VIEWStep 7: f) Explain the Equivalence of Problems of Optimal Provision of Public Bad and Public Good
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