What is socially optimal amount of air pollution reduction

Reference no: EM133442241

Suppose that there are two local busing companies that contribute to the air pollution in a city. The marginal benefit from air pollution reduction is equal to MB=60-2Q, where Q is the amount of air pollution reduction. The marginal cost of reducing air pollution for bus company A is MC=4Q and the marginal cost of reducing air pollution for bus company B is MC=4 3Q.

a. What is the socially optimal amount of air pollution reduction?

b. Is it cost-effective to have each of the bus companies reduce air pollution by equal amounts? Why or why not?

Reference no: EM133442241

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