Consider the graph below, showing the marginal damages (MD) and marginal control costs (MCC) associated with the emissions coming from a steel producing factory. MCC Emissions (tons/year) MD a. What does the area b represent? b. Explain carefully why e* is the most efficient level of emissions. c. Suppose the neighborhood around the steel factory suddenly becomes very popular and the population there increases by 10%. Which curve would change and in which direction?

Consider the graph below, showing the marginal damages (MD) and marginal control costs (MCC) associated with the emissions coming from a steel producing factory. MCC Emissions (tons/year) MD a. What does the area b represent? b. Explain carefully why e* is the most efficient level of emissions. c. Suppose the neighborhood around the steel factory suddenly becomes very popular and the population there increases by 10%. Which curve would change and in which direction?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

(J)

Consider the graph below, showing the marginal damages (MD) and marginal control costs (MCC)
associated with the emissions coming from a steel producing factory.
MCC
Emissions (tons/year)
MD
a. What does the area b represent?
b. Explain carefully why e is the most efficient level of emissions.
c. Suppose the neighborhood around the steel factory suddenly becomes very popular and the
population there increases by 10%. Which curve would change and in which direction?
d. If the population increases by 10%, as in part (c): would that increase or decrease the optimal
level of pollution? Give an intuitive explanation in 1-2 sentences.

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Step 1: Define MD (Marginal damage) and MCC (Marginal control cost)

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Step 2: Explain area 'b' under MCC curve

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Step 3: Explain most efficient level of emissions

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Step 4: Explain the direction and changes in the curve

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There is a bar on Off‐Main Street called the Rock‐n‐Roll Bar. All the people that go to that bar like to listen to rock‐n‐roll music, and they love live bands. If the bar owner brings bands in to play music on a Saturday night, she will make a lot of money. However there are tenants in this building who get annoyed by the loud music. The benefits/costs to the owner/tenants of having zero, one, two or three bands on a Saturday night are listed below. Assume the bar owner has the right to hire as many bands as she likes. Iftransaction costs were $90, split between the bar owner and the tenants, how manybands would play? What would social welfare be? A. Three bands would play and social welfare would be ‐100.B. Two bands would play and social welfare would be 75.C. Two bands would play and social welfare would be ‐15.D. No bands would play and social welfare would be 0.E. Three bands would play and social welfare would be ‐190
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