(I.) Draw (for yourself) the marginal abatement cost curves for Al and Bob, with “units of runoff abated” on the horizontal axis and “marginal cost” on the vertical axis. How do the curves look like?a. The two lines start from the origin with slopes of 3 and 5 for Al and Bob, respectivelyb. The two lines are flat with respect to the horizontal axis with intercepts of 3 and 5 for Al and Bob, respectively(II.) To achieve its goal, suppose the local agency asks Al and Bob to abate 10 units each and offers to pay their total abatement costs. What is the total cost to the agency?a. 400b. 300c. 250(III.) (Considering Al’s and Bob’s marginal abatement costs in part (II), has the agency achieved its abatement goal at the lowest possible cost? Why or why not?a. Yes, because the Equimarginal Principle was satisfiedb. No, because the Equimarginal Principle was not satisfiedc. Yes, because the pollution level was reducedd. No, because the pollution level was not reduced enough Farmers Al and Bob each operate a farm in the same watershed. Each farm useswater and fertilizer to produce both crops and polluted runoff (from nutrients in the fertilizer). Beloware the marginal cost equations for abating (i.e., reducing) polluted runoff on each farm (you may findit helpful to think of these as marginal cost functions for "producing" abatement):Al's marginal cost of abating runoff ($/unit) = 3 × Units of runoff abated by AlBob's marginal cost of abating runoff ($/unit) = 5 × Units of runoff abated by BobCurrently, Al and Bob each produce 20 units of polluted runoff (a total of 40 units) and neither abatesany runoff. Suppose the local environmental protection agency wants to reduce the total amount ofpolluted runoff generated by Al and Bob to 20 units. In other words:Units of runoff abated by Al + Units of runoff abated by Bob = 20.Unfortunately, Al and Bob have a lot of political clout and won't submit to any regulations orpenalties that force them to reduce their pollution levels. So instead, the agency offers to pay themfor their abatement expenses (this is commonly known as an "abatement subsidy").

Option a is correct. Curves are upward sloping with slope 3 and 5 for AI and bob, respectively…

Answered: Farmers Al and Bob each operate a farm…

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter13: Positive Externalities And Public Goods

Section: Chapter Questions

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(I.) Draw (for yourself) the marginal abatement cost curves for Al and Bob, with “units of runoff abated” on the horizontal axis and “marginal cost” on the vertical axis. How do the curves look like?

a. The two lines start from the origin with slopes of 3 and 5 for Al and Bob, respectively

b. The two lines are flat with respect to the horizontal axis with intercepts of 3 and 5 for Al and Bob, respectively

(II.) To achieve its goal, suppose the local agency asks Al and Bob to abate 10 units each and offers to pay their total abatement costs. What is the total cost to the agency?

a. 400

b. 300

c. 250

(III.) (Considering Al’s and Bob’s marginal abatement costs in part (II), has the agency achieved its abatement goal at the lowest possible cost? Why or why not?

a. Yes, because the Equimarginal Principle was satisfied

b. No, because the Equimarginal Principle was not satisfied

c. Yes, because the pollution level was reduced

d. No, because the pollution level was not reduced enough

Farmers Al and Bob each operate a farm in the same watershed. Each farm uses
water and fertilizer to produce both crops and polluted runoff (from nutrients in the fertilizer). Below
are the marginal cost equations for abating (i.e., reducing) polluted runoff on each farm (you may find
it helpful to think of these as marginal cost functions for "producing" abatement):
Al's marginal cost of abating runoff ($/unit) = 3 × Units of runoff abated by Al
Bob's marginal cost of abating runoff ($/unit) = 5 × Units of runoff abated by Bob
Currently, Al and Bob each produce 20 units of polluted runoff (a total of 40 units) and neither abates
any runoff. Suppose the local environmental protection agency wants to reduce the total amount of
polluted runoff generated by Al and Bob to 20 units. In other words:
Units of runoff abated by Al + Units of runoff abated by Bob = 20.
Unfortunately, Al and Bob have a lot of political clout and won't submit to any regulations or
penalties that force them to reduce their pollution levels. So instead, the agency offers to pay them
for their abatement expenses (this is commonly known as an "abatement subsidy").

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