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Determine the efficient level of pollution for a paper mill

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The table shows the marginal benefit to a paper mill of polluting a river and the marginal cost to residents who live downstream. In this problem assume that the marginal benefits and marginal costs are measured at (not between) the specific quantities shown.

Quantity of Pollution, tons Marginal Benefit, $ Marginal Cost, $
0 110 0
1 100 8
2 90 20
3 80 35
4 70 70
5 60 150
6 0 300

Plot the marginal benefit and marginal cost curves. What is the efficient quantity of pollution? Explain why neither one ton nor five tons is an efficient quantity of pollution. In the absence of pollution fees or taxes, how many units of pollution do you expect the paper mill will choose to produce? Why?

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Solution depicts the steps to estimate the efficient quantity of pollution for the paper mill example.

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Efficient quantity of pollution is the quantity at which Marginal Benefit is equal to Marginal Cost.

So, efficient quantity of pollution=4 tons. (At ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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