In the course of producing its output, a firm causes pollution. The government passes a law that requires the firm to stop polluting, and the firm discovers that it can prevent the pollution by hiring x workers for every worker that is producing output. That is, if the firm hires N workers, then xN workers are required to clean up the pollution caused by the N workers who are actually producing output. Determine the effect of the pollution regulation on the firm’s profit-maximizing choice of labor input, and on the firm’s labor demand curve

In the course of producing its output, a firm causes pollution. The government passes a law that requires the firm to stop polluting, and the firm discovers that it can prevent the pollution by hiring x workers for every worker that is producing output. That is, if the firm hires N workers, then xN workers are required to clean up the pollution caused by the N workers who are actually producing output. Determine the effect of the pollution regulation on the firm’s profit-maximizing choice of labor input, and on the firm’s labor demand curve

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter19: Externalities And Public Goods

Section: Chapter Questions

Problem 19.9P

See similar textbooks

Similar questions

Economists sometimes shock noneconomists by stating that they do not favor the complete elimination of pollution. Explain the rationale for this position.
Viral infections such as flu are highly contagious. The number of infections and thus the spread of the disease can be prevented by getting vaccinated. However, the decision to take vaccine is voluntary and some people choose not to go for it for various reasons.] [What type of externality occurs by getting vaccinated against contagious diseases? Explain your answer in 100 words or less. [In a diagram, show the market equilibrium quantity of the vaccine. Is the quantity also socially efficient? Explain in 100 words or less and demonstrate using the same diagram. [Suggest one method to achieve a socially efficient outcome. Explain your answer in 100 or less words.
The Centers for Disease Control and Prevention (CDC) has a new vaccine against a disease and are trying to determine the optimal percentage of the population that should be vaccinated. They do not recommend vaccinating the whole population against the smallpox virus because the vaccine has undesirable, and sometimes fatal, side effects. Suppose the following table gives the data about the effects of the vaccine. Percent of population Deaths Due to Deaths due to Marginal Marginal Cost vaccinated Disease vaccine side Benefit of the of the Vaccine effects Vaccine (extra (extra deaths lives saved by due to side vaccine) effects) 0% 200 0 NA NA 10% 180 10 20% 160 25 30% 140 55 40% 120 95 50% 100 140 60% 80 200 a. Calculate the Marginal Benefit (in terms of how many extra lives are saved by the…
If the correct amount of pollution is being produced now, which of the following is true? The average cost of pollution: a. is exactly equal to the average cost of the pollution reduction.b. can be greater than, equal to, or less than the costs of pollution reduction.c. reduction is greater than the cost of the pollution at all levels of pollution.d. reduction is less than the cost of the pollution at all levels of pollution.
Suppose a municipality votes to reduce the combined pollution introduced by three local companies. Presently, each firm creates 4 units of pollution in the area, for a total of 12 pollution units. The government can reduce total pollution in the area to 6 units by choosing between the following two methods: Methods to Reduce Pollution 1. The government imposes pollution standards using regulation. 2. The government issues tradable pollution permits. The costs faced by each firm are different, so it is more difficult for some firms to reduce pollution than others. The following table shows the cost faced by each firm to eliminate each unit of pollution. Assume that the cost of eliminating all 4 units of pollution (that is, reducing pollution to zero) is prohibitively expensive for all three firms. Firm Cost of Eliminating the... First Unit of Pollution Second Unit of Pollution Third Unit of Pollution (Dollars) (Dollars) (Dollars) Firm…
Assume citizens of Destrahan are complaining that Shell Chemical and Dow Chemical are polluting the environment. Currently, each firm emits 40 tons of pollution per year. Shell Chemical could reduce its pollution at a cost of $500 per ton, and Dow Chemical could reduce its pollution at a cost of $100 per ton. To reduce overall pollution to 40 units, the mayor gives each firm 20 tradable pollution permits. Each permit allows a firm to emit one ton of pollution. Assuming each permit has a market value is $200, what is the cost of reducing pollution to the desired level? a.$2,000 b.$4,000 c.$8,000 d.$10,000
Suppose the government wants to reduce the total pollution emitted by three local firms. Currently, each firm is creating 4 units of pollution in the area, for a total of 12 pollution units. If the government wants to reduce total pollution in the area to 6 units, it can choose between the following two methods: Available Methods to Reduce Pollution 1. The government sets pollution standards using regulation. 2. The government allocates tradable pollution permits. Each firm faces different costs, so reducing pollution is more difficult for some firms than others. The following table shows the cost each firm faces to eliminate each unit of pollution. For each firm, assume that the cost of reducing pollution to zero (that is, eliminating all 4 units of pollution) is prohibitively expensive. Firm Cost of Eliminating the... First Unit of Pollution Second Unit of Pollution Third Unit of Pollution (Dollars) (Dollars) (Dollars) Firm X 90 125 180…
Public Goods. Suppose a neighborhood in Segovia’s central business area is deciding how many fountains they want to see in the main avenue. There is a first group of 20 neighbors and each has a demand Q = 20 − P for fountains. There is a second group of 5 people, and each has a demand Q = 20 − 2P for fountains. The cost of building each fountain is 225. How many fountains are socially optimal? Fountains are public goods. Hint: To obtain the SMB, please first transform the demand functions into “public goods’ valuations” (“isolate P”) and then multiply them by the amount of neighbors per group. Then you can proceed with the vertical summation.
The “demand” (MB) curve for pollution abatement would be given by the pollution damages that could be avoided by each successive unit of abatement. There are likely to be declining marginal benefits from each additional unit of abatement. The marginal cost of abatement is likely to start small, and then grow, yielding increasing marginal abatement costs from each additional unit of abatement. The socially efficient amount of abatement would be given by the intersection of the falling marginal benefit (avoided damages) curve and the rising marginal abatement cost curve. However, unregulated firms can often simply ignore the damages caused by the pollution they create. a. Illustrate the marginal private benefit curve, as perceived by the firm, if they don’t have to think about their pollution at all, and show the firm’s privately efficient amount of abatement. b. If the regulatory agency sets a standard for expected levels of abatement, and charges the firm a huge fine per unit if…
Suppose a municipality votes to reduce the combined pollution introduced by three local companies. Presently, each firm creates 4 units of pollution in the area, for a total of 12 pollution units. The government can reduce total pollution in the area to 6 units by choosing between the following two methods:Methods to Reduce Pollution1. The government imposes pollution standards using regulation.2. The government issues tradable pollution permits.The costs faced by each firm are different, so it is more difficult for some firms to reduce pollution than others. The following table shows the cost faced by each firm to eliminate each unit of pollution. Assume that the cost of eliminating all 4 units of pollution (that is, reducing pollution to zero) is prohibitively expensive for all three firms.FirmCost of Eliminating the...First Unit of PollutionSecond Unit of PollutionThird Unit of Pollution(Dollars)(Dollars)(Dollars)Firm A 130 165 220Firm B 600 750 1,200Firm C…
Consider the market for flu vaccines, in which consumption causes positive externalities by creating herd immunity. Quantity supplied is given by Qs=2+2*P Marginal Private Benefit (determines individual demand of consumers of the vaccine i.e. the benefit from not getting sick) is given by Qd=60.5-2.5*MBP. Marginal Social Costs (MPC plus the benefits of externalities) is given by Qd=69.5-2.5*MSB. Plot these 3 curves on a graph with 6 points at P=11,12,13,14,15,16. What is the deadweight loss if only free-market forces are at play (i.e. externalities are not considered by the consumers)? How much should the subsidy be to bring the market to efficient equilibrium?
Which of the following statements is TRUE about the optimal quantity of pollution? Question 6 options: irms should be allowed to determine the profit-maximizing amount of pollution abatement. Pollution abatement should continue up to the point where marginal cost equals the average total cost. Trade-offs exist between producing a cleaner environment and producing other goods and services. It equals zero.