Consider an upstream chemical company and a downstream agricultural producer coex- isting along a river. The chemical company produces output y, but, in the process, also generates waste by-product r that is harmful for apple production by the agricultural firm. The marginal benefit and damage functions are: MB(x) = 12 – I MD(r) = 2x Determine analytically the level of waste that is generated at (i) individual benefit maxi- mizing level of production, (ii) the socially optimal level of production, and (iii) compare both allocations. Show your results in a figure.

Consider an upstream chemical company and a downstream agricultural producer coex- isting along a river. The chemical company produces output y, but, in the process, also generates waste by-product r that is harmful for apple production by the agricultural firm. The marginal benefit and damage functions are: MB(x) = 12 – I MD(r) = 2x Determine analytically the level of waste that is generated at (i) individual benefit maxi- mizing level of production, (ii) the socially optimal level of production, and (iii) compare both allocations. Show your results in a figure.

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter14: Environmental Economics

Section: Chapter Questions

Problem 7SQ

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