Cost-Benefit Analysis: Assume you're a legislator facing the following scenario. A new kind of water pollution chemical named "loppukoe" is discovered. Some companies discharge "loppukoe" to the streams of water in the area under your legislation. Statistical evaluations find that as a result of this pollution, in each year, 2,000,000 fish and 10 people die. You can pass a law to prohibit such pollution, but obviously there are some administration and compliance costs (costs of regulation) involved.

I) How much should the costs of regulations be in order for you to pass the law? Show your calculations. Make assumptions about the value of life of the humans and the fish.

II) Assume that an alternative production process can be used which does not discharge "loppukoe", but instead emits a dangerous gas named "lokapróf". This air pollution if not prevented by law, will kill 11 people per year (it is harmless to animals). As a legislator, you can either allow "lokapróf" or "loppukoe". Use your assumptions from part I to determine, which one should be allowed.