I am confused with question 5. I have graphed the marginal cost and marginal benefit. But I keep getting different numbers for the rest (refer to all my pencil scribbles on the paper). Please help me. (Refer to the attached images) Thank you!
5. Suppose that a steel factory emits sulfur dioxide (SO2). The situation is described in the following table. Costs and Benefits to the factory Emissions Marginal Cost to the owners Marginal Benefit to society (but not the reductions (tons) of SO2 reduction (millions of $) owners) of SO2 reductions (millions of $) ONmy inno ONmino NOR? a. Graph the marginal cost of reduction ("pollution abatement"). P 507 MC J 6
b. Graph the marginal benefit of pollution abatement. P 45 40 35- 30 25+ 20 15 - 10. 5 MB 8 Q c. The optimal level of pollution abatement = . Explain why. Because that's where the graph's intersect You would want to be equal because then you don't have cost's or benefits that are overrunning each d. The Total Cost of Abatement to society at the optimal level = 2. Explain why. you want to be at the optimal level. they want to cancel out e. The Total Benefit of Abatement to society at the optimal level = (Hint: For both d and e, you need to go from "marginal" to "total.") Explain why. f. The level of abatement if there is no government intervention = . Explain why. They don't care, they
g. Explain why your answer in f is different than your answer in c: Because in one they don't care and in the other they want to te eoval is they don't overrun each other h. If the government imposes a tax of $8 million for each ton of SO2 emitted, the level of abatement chosen by the firm in response = _ i. Explain why the firm will choose this level of abatement. Be precise. They will choose the one that is of equilibrium for them The most they can get j. Suppose, instead, that the government paid a subsidy of $8 million for each ton of SO2 abatement. In this case, the level of abatement chosen by the firm = k. Explain why the firm will choose this level of abatement. Be precise. 1. Compare your answer in i with your answer in k and explain the differences in incentives when a tax is imposed and when a subsidy is offered. Be precise. m. Given the differences in incentives you just identified and discussed, why is the result the same in the two cases (in terms of abatement)? Be precise.
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