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This problem continues the analysis from question 2.

a.Another economic study finds that the marginal cost (MC) to farmers of nutrient runoff abatement is MC = .1Q. Graph this function & explain 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?

 

 

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M9533849

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