Examine the following marginal costs and marginal benefits associated with air c
ID: 1203307 • Letter: E
Question
Examine the following marginal costs and marginal benefits associated with air cleanliness in a given locale:
Quantity of clean air %
Marginal cost $
Marginal benefit $
0
50,000
600,000
20
150,000
360,000
40
200,000
200,000
60
300,000
150,000
80
400,000
120,000
100
infinite
0
a. How do we determine the optimal quantity of clean air?
b. What is the optimal degree of air cleanliness for this example?
c. What is the optimal degree of air pollution for this example?
d. Suppose that a state provides subsidies for a company to build i. plants that contribute to air pollution. Cleaning up this pollution causes the marginal cost of air cleanliness to rise by $210,000 at each degree of air cleanliness. What is the optimal degree of air cleanliness after this change?
e. Why would we not just want the percent of pollution to be zero?
Quantity of clean air %
Marginal cost $
Marginal benefit $
0
50,000
600,000
20
150,000
360,000
40
200,000
200,000
60
300,000
150,000
80
400,000
120,000
100
infinite
0
Explanation / Answer
A) Optimal quality of clean air happens to be the one where Marginal cost equals marginal benefit.
B) For this example, optimal degree of cleanliness is 40%. At this level, Marginal cost ($ 200000) equals marginal benefit ( $ 300000).
C) If optimal degree of air cleanliness is 40 % than optimal degree of air pollution would be 60%.
D) Given that marginal cost of air cleanliness rises by $210000 at each degree of air cleanliness.
Optimal degree of air cleanliness after this change would be 20%. Because Marginal cost equals marginal benefit at that degree.
E) Zero percent of pollution is not effecient, according to economoists. The cost of reduction of pollution level to zero would probably exceed the benefits. Waterways and the atmosphere have a natural monopoly to assimilate some pollution with no associated ill effects on the environment or humans. To not benefit from this natural assimilative would be wasteful. Plus, someone's pollution may be another person's consumption. SO, it's not optimal to have zero degree of pollution.
quantity of clean air % marginal cost marginal benefit 0 260000 600000 20 360000 360000 40 410000 200000 60 510000 150000 80 610000 120000 100 infinite 0Related Questions
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