Question

In: Economics

A chemical factory and fishery are located on the same lake. Suppose the chemical factory has...

A chemical factory and fishery are located on the same lake. Suppose the chemical factory has the property right to use the lake, and that its pollution is reducing the number of fish in the lake which directly harms the fishery. The marginal damage function is given by MD = 5E and the marginal abatement function is given by MAC = 1000-5E. Emissions are in units per month and costs are in dollars per unit of emission. How much would the fishery need to offer the factory per month to reduce emissions to the socially efficient level? How much better off would this make the fishery compared to a situation where the factory does not reduce any emissions? How much better off would the factory be if it accepts the fishery’s offer and reduces its emissions to the socially efficient level?


1) Fill in the blanks: Fishery will offer to pay $_______ making the fishery better off by $_______.. The factory will be better off by$______.

Solutions

Expert Solution

Fishery will offer to pay $ 50,000  making the fishery better off by $ 25,000. The factory will be better off by $ 25,000

Rahul Sunny answered 7 months ago
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