Reference no: EM132075288

Recently, a chemical ingredient factory which emits harmful pollutants is established near Lily Town. Now, many residents are suffering from air pollution due to the emissions of the factory so the residents urge the owner of the factory to set up an air purifying system to reduce the emissions of toxic gas.

Considering the situation, which one of the following statements is correct?

a. In this case, social marginal benefits is larger than social marginal costs.

b. Applying the Coase theorem, even if residents provide a proposal stating that the residents themselves will pay all costs for setting and managing the air purifying system and the owner of the factory is willing to accept the proposal, the result will not be efficient.

c. To negotiate a favorable deal with residents, the owner of the factory hires a lawyer who generally charges a million of dollars per case. The behavior of the owner makes the situation difficult to internalize the externality.

d. Government intervention cannot solve this problem.