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Economics

You are a policy adviser responsible for air pollution in a region where there are only two chemical plants run by firm A and firm B. Firm A’s pollution abatement costs are 2x^3 , where x is a unit of pollution. Firm B is newer and has pollution abatement costs of 2x^2. Assume that neither firm is initially abating pollution. The per-unit benefit to a unit of pollution abatement is a constant $600.

Question: Suppose your boss, an elected politician, decides that each firm must reduce pollution by exactly the same amount. Is this socially optimal?

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M91995482

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