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Profits associated with polluting for Friedman Inc. are π = 40Q - 2Q2, where Q = pollution emitted (in tons), and profits are measured in dollars. Marginal benefits (Marginal profit) from polluting, derived from this function, are Mπ = 40 - 4Q.

(a) How much pollution do you expect Friedman to produce in the absence of pollution regulation?
(b) The damages (costs) associated with pollution from Friedman are estimated as Damages = D = 3Q2, where damages are measured in dollars. What are the damages (costs) associated with Friedman's unregulated level of pollution? What are the net benefits at this point?
(c) The marginal damages (costs) associated with that function are MD = 6Q. What is the efficient level of pollution? What are total benefits and costs at the efficient level of pollution? What is the level of net benefits at this point?
(d) What are the marginal benefits and costs at the efficient level of pollution?
(e) Suppose that the damages affect only one person, Samuelson, and Friedman has a clear right to emit as much as it likes. Samuelson and Friedman can negotiate at no cost. With no government regulatory programs, how much do you expect the firm to pollute? Why?
(f) Now suppose the damages affect only Samuelson, who has a clear right to be free of harm from pollution. Samuelson and Friedman can negotiate at no cost. With no government regulatory programs, how much do you expect the firm to pollute? Why?
(g) Suppose the damages affect only Samuelson, who has a clear right to be free of harm from pollution. Now, though, enforcing that right will require Samuelson to spend $500 in legal fees. With no government regulatory programs, how much do you expect Friedman to pollute, and why?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M940141

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