Ask Question, Ask an Expert


Ask Microeconomics Expert

problem 1: Suppose you are a regulator in charge of allocating water between residential and agricultural users (farmers) in Southern California. You conduct a survey that finds that under the current split the average residential water consumer would be willing to pay up to $0.70 a gallon for the next gallon of water they consume while the increased market value of crop production from the gallon of water (after farmers pay their costs) to the most profitable farmer would be $0.20. Is the current allocation of water economically efficient (circle: yes or no)? If not, in what direction should the water be reallocated? In a sentence or two describe how we would expect these two quantities to compare to each other if net benefits were maximized.

problem 2: You are tasked with evaluating a project for reducing nutrient (nitrogen and phosphorus) loading into the Gulf of Mexico (GOM). These nutrients make their way into the GOM by way of the Mississippi River and primarily come from the runoff of chemical fertilizer and animal manure from Midwestern farms. They can trigger hypoxia (look it up) in the marine ecosystem, leading to “dead zones”, unattractive and toxic algae blooms, and fish kills. A consultant for the National Oceanic and Atmospheric Administration (NOAA) estimates the following “marginal benefit” curve to fishermen and other affected communities for reductions in nutrient loads from their baseline (2010) levels: MB = 10-.1Q. Q is in units of millions of tons of nitrogen removed (so 1=1,000,000 tons). MB is in millions of dollars per million tons (so 1 = $1,000,000).     

a) Draw the marginal benefit curve for nutrient cleanup given the equation above. describe why the downward slope of this curve is reasonable (hint: what does this imply for the extra damage done by each extra unit of pollution as it is released into the ecosystem?). Finally, describe why this is a “demand curve” for pollution abatement.   

b) Graphically, show how the total benefits of nitrogen removal can be find outd from the marginal benefit function at a reduction of 10 million tons (Q = 10). find out these total benefits numerically. 

c) Using the logic developed in the previous problem, come up with an equation that gives you total benefits. In other words, come up with an equation of the total area of the “rectangle” and “triangle” that make up total benefits for any level of Q. (Note that I showed how to do this in class for a specific ex. You should also be able to check your work by seeing if your equation can replicate your answer for part b.) Graph this equation (by hand or feel free to cut and paste from Excel or a similar graphic program). 

d) Intuitively, describe why total benefits increase at a decreasing rate as the level of pollution abatement increases.  

problem 3: This problem continues the analysis from problem 2.  
a) Another economic study finds that the marginal cost (MC) to farmers of nutrient runoff abatement is MC = .1Q. Graph this function & describe intuitively why it slopes upward in Q.

b) Following logic very similar to that in 2(c), find a formula for the total costs (TC) to farmers of a reduction in nutrient runoff.

c) Graph the total benefits and total costs functions on the same graph (again, feel free to cut and paste from Excel or a similar program). At approximately what level of abatement are net benefits to society (including both coastal and farming interests) maximized?

d) Graphically and numerically find the quantity of runoff abatement such that marginal benefits of reduced runoff are exactly offset by the marginal cost of the reduction (your graph should use the MB and MC functions, not the total functions). Why is this the efficient level of pollution abatement? 

e) Suppose the status quo is zero abatement. Who wins and loses from moving to the efficient amount of runoff found in part d and by how much? Is there the potential to create a “win-win” out of this situation? How?

problem 4: Consider the case of cleaning up chemical contamination at an industrial site. The marginal benefits of additional cleanup are decreasing as the amount of cleanup increases. However, the marginal costs of the cleanup are actually decreasing (rather than increasing) in the level of cleanup as well. The reason is that much of the cost of the cleanup involves first locating contamination and then digging to expose contaminated soil. Therefore, the most expensive unit to clean up is the very first.  We can depict this graphically. 

First, if you were only looking at whether the first small increment of cleanup passed a benefit-cost test, what would you conclude?

Second, does the “equimarginal principle” (MB = MC) lead to a situation where the net benefits of cleanup are maximized?  

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M91432

Have any Question? 

Related Questions in Microeconomics

Assignmentxyz company enters into a contract with mary to

Assignment XYZ Company enters into a contract with Mary to landscape Ben's yard, using None Nursery to supply trees and buses. Kate owns the lot next to Ben's property. The landscaping is a gift from Mary to Ben, who is ...

Assignment1in your own words please define describe and use

Assignment 1. IN YOUR OWN WORDS, please define, describe and use an example for the following term (see below). The term (including example) should be no more than 50 words.The following rubric is used to assess each ter ...

Assignmentin the article at the beginning of the readings

Assignment In the article at the beginning of the readings book, Aronson talks about Social Psychology as a leap of faith, and about the imperfect nature of social psychological experiments (which is true of science in a ...

Milestone projectmilestone one propose organization for

Milestone Project Milestone One: Propose Organization for Analysis In Module Three, you will select the organization you would like to analyze in part two of the final project using the U.S. Securities and Exchange Commi ...

Problem setthis problem set is due on monday october 24th

Problem Set This problem set is due on Monday, October 24th in class. Consider the specific factors model (2 goods, 3 factors, where labor is the flexible factor) for a given small country with the following Cobb-Douglas ...

New jersey human servicesassignment evaluation of the

NEW JERSEY HUMAN SERVICES Assignment: Evaluation of the Agency's Budgeting and Cumulative Report As a consultant, you need to develop an in-depth analysis and evaluation of the selected agency's budgeting and then provid ...

Discussion questionconsider a group of documents that has

Discussion Question Consider a group of documents that has been selected from a much larger set of diverse documents so that the selected documents are as dissimilar from one another as possible. If we consider documents ...

Assignmentin this assignment you will discuss the role of

Assignment In this assignment, you will discuss the role of entrepreneurship in improving the economic condition of countries and individuals and understand the manner in which this perception has spread around the world ...

Fiscal policy modulewhich has a larger effect on aggregate

Fiscal Policy Module Which has a larger effect on aggregate demand: an increase in government expenditure or an equal-sized decrease in taxes? Explain your answer. To eliminate a recessionary gap, which fiscal policy sho ...

Project-listen to this video asafter you work on your graph

Project- Listen to this video as/after you work on your graph. The lecture is on the 'Aftermath of the Financial Crisis' given by Ben Bernanke in March 29 th 2012. ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro