EEP101/ECON125 Spring 00
Prof.: D. Zilberman
GSIs: Malick/McGregor/StPierre
PROBLEM SET 2
Due Thursday, March 9, 2000 in class
(Late assignments will not be graded)
1.
Assume there are three polluting firms in the economy with marginal benefit curves given by:
MB
1
= 75 – (5/4)q
1
for firm 1, MB
2
= 75 – q
2
for firm 2, and MB
3
= 75 – (3/4)q
3
where q
i
(i=1,2,3)
is the amount of emissions produced by each firm.
a)
Find the aggregate marginal benefit curve. (Hint: Find the horizontal sum of the individual
MB curves). Draw each of the four curves in a single graph.
b)
Which firm is more efficient in reducing pollution? Explain.
c)
If the marginal social cost curve is given by MSC = 30 + Q, what is the optimal level of
emissions (Q*) to be produced? Show both the MSC curve and Q* on the same graph.
d)
What is the optimal tax to be levied to achieve Q*? Given this tax, find the amount of
emissions produced by each firm, q*
1
, q*
2
, and q*
3
.
Show these levels on the same graph.
e)
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This document was uploaded on 02/04/2011.
 Spring '09

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