In: Economics
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?
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