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Unformatted text preview: to minimize the sum of total costs of removal and total harm, i.e., Minimize 5P 2 +4(1P)+(1P) 2 The optimal value of P solves the equation 4P = 2, or P = .5. For those not using the calculus, you can calculate total costs (TC + TD) for possible values of P and choose the costminimizing value: P TC TD TC + TD 0.0 0.00 5.00 5.00 .1 .05 4.81 4.86 .2 .20 3.84 4.04 .3 .45 3.29 3.74 .4 .80 2.76 3.56 .5 1.25 2.25 3.50 .6 1.80 1.76 3.56 .7 2.45 1.29 3.74 Once again the solution is P = .5 3. In this situation the individuals require the factory to remove 50 percent of emission. The factory receives as compensation all of its removal costs and therefore is made no worse off than if it had done nothing. The individuals pay the factory the total cost of removal, 1.25, but are happy to do so since they reduce harm by substantially more. Note that there is no possibility of strategic behavior here....
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This homework help was uploaded on 04/16/2008 for the course LEGALST 145 taught by Professor Rubenfield during the Spring '08 term at Berkeley.
 Spring '08
 Rubenfield

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