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Private enterprises often oppose environmental regulation because it raises cost of operation, reducing profits. Suppose that Belville, KS has ten dairy farms whose manure runoff pollutes the River. The table below gives information about the operation of each farm, identified

Private enterprises often oppose environmental regulation because it raises cost of operation, reducing profits. Suppose that Belville, KS has ten dairy farms whose manure runoff pollutes the River. The table below gives information about the operation of each farm, identified

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter16: Government Regulation
Section: Chapter Questions
Problem 9E
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Private enterprises often oppose environmental regulation because it raises cost of operation, reducing profits. Suppose that Belville, KS has ten dairy farms whose manure runoff pollutes the River. The table below gives information about the operation of each farm, identified X A 270 24 2 580 44 6. C 760 49 12 650 60 15 E 270 12 9. F 380 15 18 200 6. 13 H. 260 7 25 250 6. 35 1020 21 204 where daily milk output in gallons L daily demand for labor (in worker hours) average daily quantity of manure leaching into the river (in gallons) The wholesale price of milk (px) is $1/gallon, and the wage (pL) is $12/hour. Suppose that farms cannot adapt their individual production practices: they either remain in business if they are profitable, or they have to shut down if they are not. a) Suppose that farms can pollute as much as they want. Which farms are profitable? Assuming that unprofitable firms shut down, calculate Belville's resulting total milk output, total company profits, and total runoff.
Transcribed Image Text:Private enterprises often oppose environmental regulation because it raises cost of operation, reducing profits. Suppose that Belville, KS has ten dairy farms whose manure runoff pollutes the River. The table below gives information about the operation of each farm, identified X A 270 24 2 580 44 6. C 760 49 12 650 60 15 E 270 12 9. F 380 15 18 200 6. 13 H. 260 7 25 250 6. 35 1020 21 204 where daily milk output in gallons L daily demand for labor (in worker hours) average daily quantity of manure leaching into the river (in gallons) The wholesale price of milk (px) is $1/gallon, and the wage (pL) is $12/hour. Suppose that farms cannot adapt their individual production practices: they either remain in business if they are profitable, or they have to shut down if they are not. a) Suppose that farms can pollute as much as they want. Which farms are profitable? Assuming that unprofitable firms shut down, calculate Belville's resulting total milk output, total company profits, and total runoff.
The wholesale price of milk (px) is $1/gallon, and the wage (pL) is $12/hour. Suppose that farms cannot adapt their individual production practices: they either remain in business if they are profitable, or they have to shut down if they are not. a) Suppose that farms can pollute as much as they want. Which farms are profitable? Assuming that unprofitable firms shut down, calculate Woodstock's resulting total milk output, total company profits, and total runoff. b) Suppose the marginal externai Cost of each gallon of runoff (Pz) is $8. What is the net social benefit? On balance, does society benefit from che profitable farms remaining in business? c) Suppose the Connecticut EPA conducts field measurements of manure runoff and fines each farm at the level of the external cost it produces. Which farms remain in business? What are total milk output, total company profits, and total runoff? What about the net social benefit? d) Suppose that instead of a fine, the EPA imposes a uniform performance standard which is expressed as a maximum runoff intensity (z / x). To enforce the standard, farms which pollute above the intensity limit are forced to shut down. At what range of values (max / min) would the standard have to be set to result in a similar net social benefit as the fine? How is the outcome different from the policy in c)?
Transcribed Image Text:The wholesale price of milk (px) is $1/gallon, and the wage (pL) is $12/hour. Suppose that farms cannot adapt their individual production practices: they either remain in business if they are profitable, or they have to shut down if they are not. a) Suppose that farms can pollute as much as they want. Which farms are profitable? Assuming that unprofitable firms shut down, calculate Woodstock's resulting total milk output, total company profits, and total runoff. b) Suppose the marginal externai Cost of each gallon of runoff (Pz) is $8. What is the net social benefit? On balance, does society benefit from che profitable farms remaining in business? c) Suppose the Connecticut EPA conducts field measurements of manure runoff and fines each farm at the level of the external cost it produces. Which farms remain in business? What are total milk output, total company profits, and total runoff? What about the net social benefit? d) Suppose that instead of a fine, the EPA imposes a uniform performance standard which is expressed as a maximum runoff intensity (z / x). To enforce the standard, farms which pollute above the intensity limit are forced to shut down. At what range of values (max / min) would the standard have to be set to result in a similar net social benefit as the fine? How is the outcome different from the policy in c)?
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