2. Company A, the polluter, is located upwind of Company B, the victim, in a certain airshed. A's factory pollutes the air, thereby harming B's operations. A's marginal abatement cost is MAC(E)= 30E/3, where E is the amount of emissions. B's marginal pollution damages from emissions are MPD(E)= (2/3) - E. Suppose victim B has the right to perfectly clean air. What will be the observed level of emissions from polluter A, in the absence of bargaining? If the transactions costs of bargaining are zero, how much pollution will A emit after bargaining? What will be the minimum amount that B must be paid to agree to accept an emissions at this level?

2. Company A, the polluter, is located upwind of Company B, the victim, in a certain airshed. A's factory pollutes the air, thereby harming B's operations. A's marginal abatement cost is MAC(E)= 30E/3, where E is the amount of emissions. B's marginal pollution damages from emissions are MPD(E)= (2/3) - E. Suppose victim B has the right to perfectly clean air. What will be the observed level of emissions from polluter A, in the absence of bargaining? If the transactions costs of bargaining are zero, how much pollution will A emit after bargaining? What will be the minimum amount that B must be paid to agree to accept an emissions at this level?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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