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The cost of pollution emanating from the chemical industry (in billions of dollars) is
CP = 3 P + 3 P2
where P is the quantity of pollutants emitted (in thousands of tons). The cost of pollution control (in billions of dollars) is
CC = 7-5 P
a. What is the optimal effluent fee?
b. If the cost of pollution control falls by $1 billion at each level of pollution, does this alter your answer to part (a)?
Consider a firm with total short-run cost function C=a+b.Q. New legislation means that it should pay an environmental tax which is the fixed sum, independent of whether it produces any output.
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Atlantis will lose its patent protection, and analysts expect economic profit to be zero after five years and which is also the maximum price investors would be willing to pay for Atlantis Company.
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