Two textile mills, located across a river from each other, are polluting the river. The marginal costs of pollution reduction for each firm are MCE₁ = 4E₁ +4 MCE₂ = 4/3E2 + 4/3, where E is the reduction in pollution from unregulated levels_ The associated marginal social benefit is estimated to be MSB = 10 - E, where E = E₁ + E₂. a. What is the socially optimal level of water-pollution reduction? c. If instead the government imposed a standard requiring each firm to equally reduce the level of pollution to achieve the socially optimal solution in part (i), what are the costs for each firm?
Two textile mills, located across a river from each other, are polluting the river. The marginal costs of pollution reduction for each firm are MCE₁ = 4E₁ +4 MCE₂ = 4/3E2 + 4/3, where E is the reduction in pollution from unregulated levels_ The associated marginal social benefit is estimated to be MSB = 10 - E, where E = E₁ + E₂. a. What is the socially optimal level of water-pollution reduction? c. If instead the government imposed a standard requiring each firm to equally reduce the level of pollution to achieve the socially optimal solution in part (i), what are the costs for each firm?
Microeconomics A Contemporary Intro
10th Edition
ISBN:9781285635101
Author:MCEACHERN
Publisher:MCEACHERN
Chapter17: Externalities And The Environment
Section: Chapter Questions
Problem 5QFR
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Transcribed Image Text:5B. Two textile mills, located across a river from each other, are polluting the river.
The marginal costs of pollution reduction for each firm are MCE₁ = 4E₁ + 4
MCE2 = 4/3E2 + 4/3, where E is the reduction in pollution from unregulated levels.
The associated marginal social benefit is estimated to be MSB = 10-E, where
E = E₁ + E₂.
a. What is the socially optimal level of water-pollution reduction?
c. If instead the government imposed a standard requiring each firm to equally
reduce the level of pollution to achieve the socially optimal solution in part (i),
what are the costs for each firm?
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