With pollution causing damaging effects on the air quality, the state of Nevada is trying to...

With pollution causing damaging effects on the air quality, the state of Nevada is trying to determine how much abatement to pursue for a pollutant. The estimated market marginal social benefit (MSB) is M S B = 510 − 2 A, market marginal abatement costs (MAC) is M A C m k t = 3 A, and marginal cost of enforcement (MCE) is M C E = A, where is units of pollution abated. What is the efficient level of pollution abatement?

Solutions

Expert Solution

Market marginal social benefit (MSB) = 510 − 2 A

Market marginal abatement costs (MAC) m k t = 3 A

Marginal cost of enforcement (MCE) = A

Marginal social cost (MSC)

MSC = MACmkt + MCE

MSC = 3A + A = 4A

Allocatively efficient level of A (Ae) will occur at where two curves meet

MSB = MSC

So,

510 - 2Ae = 4Ae

Ae = 85

Rahul Sunny answered 2 years ago

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