Two types of consumers (workers and retirees) share a community with a polluting cheese factory. The pollution is nonrival and nonexcludable. The total damage to workers is p² where p is the amount of pollution and the total damage to retirees is 3p². Thus marginal damage to workers is 2p and marginal damage to retirees is 6p. According to an analysis by consulting engineers, the cheese factory saves 20p - p² by polluting p, for a marginal savings of 20 - 2p. a. Find the aggregate (including both types of consumers) marginal damage for the public bad. b. Graph the marginal savings and aggregate marginal damage curves with pollu- tion on the horizontal axis. C. How much will the cheese factory pollute in the absence of any regulation or bargaining? What is this society's optimal level of pollution?

Two types of consumers (workers and retirees) share a community with a polluting cheese factory. The pollution is nonrival and nonexcludable. The total damage to workers is p² where p is the amount of pollution and the total damage to retirees is 3p². Thus marginal damage to workers is 2p and marginal damage to retirees is 6p. According to an analysis by consulting engineers, the cheese factory saves 20p - p² by polluting p, for a marginal savings of 20 - 2p. a. Find the aggregate (including both types of consumers) marginal damage for the public bad. b. Graph the marginal savings and aggregate marginal damage curves with pollu- tion on the horizontal axis. C. How much will the cheese factory pollute in the absence of any regulation or bargaining? What is this society's optimal level of pollution?

ENGR.ECONOMIC ANALYSIS

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Chapter1: Making Economics Decisions

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Question

you
5. Two types of consumers (workers and retirees) share a community with a polluting
cheese factory. The pollution is nonrival and nonexcludable. The total damage to
workers is p² where p is the amount of pollution and the total damage to retirees is
3p². Thus marginal damage to workers is 2p and marginal damage to retirees is 6p.
According to an analysis by consulting engineers, the cheese factory saves 20p - p²
by polluting p, for a marginal savings of 20-2p.
a.
TAT
Find the aggregate (including both types of consumers) marginal damage for the
public bad.
b. Graph the marginal savings and aggregate marginal damage curves with pollu-
tion on the horizontal axis.
C.
How much will the cheese factory pollute in the absence of any regulation or
bargaining? What is this society's optimal level of pollution?
d. Starting from the uncontrolled level of pollution calculated in part (c), find the
marginal willingness to pay for pollution abatement, A, for each consumer class.
(Abatement is reduction is pollution; zero abatement would be associated with
the uncontrolled level of pollution.) Find the aggregate marginal willingness to
pay for abatement.
e. Again starting from the uncontrolled level of pollution, what is the firm's mar-
ginal cost of pollution abatement? What is the optimal level of A?
f.
Are the problems of optimal provision of the public bad (pollution) and the pub-
lic good (abatement) equivalent? Explain why or why not.

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Step 2: a) Find the Aggregate Marginal Damage

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Step 3: b) Graph the marginal savings and aggregate marginal damage curves

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Step 4: c) Determine the level of pollution to be made by cheese factory & society's optimal level

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Step 5: d) Find the aggregate marginal willingness to pay for abatement

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Step 6: e) Find the firm's marginal cost of pollution abatement

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Step 7: f) Explain the Equivalence of Problems of Optimal Provision of Public Bad and Public Good

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