B A Marginal Benefits to Factory A+B+C A+B E A B C Marginal Costs to Community F D E The graph above shows the marginal benefits a factory receives from pollution, as well as the marginal damages from its pollution to a nearby community. Assume the community holds the right to prevent and that the conditions for the Coase Theorem apply. After the factory and community negotiate an agreement, what area(s) represent(s) the net benefits the community receives? Assume that all pollution rights sell for the same price per unit. Pollution

B A Marginal Benefits to Factory A+B+C A+B E A B C Marginal Costs to Community F D E The graph above shows the marginal benefits a factory receives from pollution, as well as the marginal damages from its pollution to a nearby community. Assume the community holds the right to prevent and that the conditions for the Coase Theorem apply. After the factory and community negotiate an agreement, what area(s) represent(s) the net benefits the community receives? Assume that all pollution rights sell for the same price per unit. Pollution

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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No hand written solution Afirm has an industrial plant that emits pollutants into a town’s lake. The plant’s marginal abatement function is MAC= 200 – 0.5E and damages caused by its emissions are given by MD = 2E where emissions are in kg. per day. What is the socially efficient level of emissions from this plant? Illustrate this in a graph. As an incentive to reduce emissions to the socially efficient level, government offers to pay the firm for each kg. of emissions it abates per day from this plant. What subsidy per kg. should the government offer? If the plant abates to the socially efficient level of emissions, what total subsidy payment would the firm receive? Identify the area in your graph. How much better or worse off would the firm be compared to if it did no abating? Identify the area in your graph. What would be the net benefit to society if we pay the firm to reduce the plant’s emissions to the socially efficient level? Identify this area in your graph.
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