What is optimal level of pollution abatement

Reference no: EM13689509

Suppose the marginal cost of abating X units of pollution is given by MC(X) = 2X and marginal benefits are MB(X) = 10-2X. Suppose Current pollution = 4 = Xmax

a) What is optimal level of pollution abatement, X*?

b) What are total costs, marginal costs and total net benefits at X=X*?

c) What is the total net benefit of making and enforcing a rules that bans pollution completely? What is the marginal benefit from removing the last little bit of polution (i.e. the marginal benefit around point X=Xmax)?

d) If a ban is placed on new wood burning fire places. Argue why marginal net benefit is likley to get smaller and become negative as policies eliminate more and more fireplaces.

Reference no: EM13689509

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