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Chapter 12: Problem 43

A city currently emits 16 million gallons (MG) of raw sewage into a lake that is beside the city. Table 12.13 shows the total costs (TC) in thousands of dollars of cleaning up the sewage to different levels, together with the total benefits (TB) of doing so. Benefits include environmental, recreational, health, and industrial benefits. a. Using the information in Table 12.13 calculate the marginal costs and marginal benefits of reducing sewage emissions for this city. b. What is the optimal level of sewage for this city? How can you tell?

Short Answer

Expert verified
The solution consists of calculating the Marginal Costs (MC) and Marginal Benefits (MB) based on the given Total Costs (TC) and Total Benefits (TB) values from Table 12.13. The optimal level of sewage emissions can be found by comparing the MC and MB, and identifying the point where \(MC \approx MB\), or the additional MB is lower than any further increase in MC. This level is optimal because it maximizes the net benefits of reducing sewage emissions while efficiently allocating resources for the cleanup process without overspending.

Step by step solution

01

Calculate the Marginal Costs and Marginal Benefits

We are given Total Costs (TC) and Total Benefits (TB) of reducing sewage emissions to different levels in Table 12.13. To calculate the Marginal Costs (MC) and Marginal Benefits (MB), we'll need to find the differences in consecutive TC and TB values. \(MC = \Delta TC\) \(MB = \Delta TB\) Note: In case there is Table 12.13 not available, please provide the required table values from it to proceed with the solution.
02

Find the optimal level of sewage emissions

In order to find the optimal level of sewage emissions, we need to determine at what level of sewage reduction the Marginal Benefits (MB) equal Marginal Costs (MC). This is the point where the net benefits of reducing sewage emissions will be maximized, and the city will optimize its resource allocation between sewage treatment and other competing goals. Compare \(MC\) and \(MB\) for each level of sewage reduction. The optimal level of sewage emissions is the point where \(MC \approx MB\), or the point where additional \(MB\) is lower than any further increase in \(MC\).
03

Explain how we know the chosen level is optimal

The optimal level of sewage emissions is the level where the difference between Total Benefits (TB) and Total Costs (TC) is the largest, and the marginal benefits of reducing emissions equal the marginal costs. At this level, the city is allocating resources efficiently to maximize the net benefits of reducing sewage emissions while not overspending on an excessive level of cleanup.

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Most popular questions from this chapter

Table 12.5 provides the supply and demand conditions for a manufacturing firm. The third column represents a supply curve without accounting for the social cost of pollution. The fourth column represents the supply curve when the firm is required to account for the social cost of pollution. Identify the equilibrium before the social cost of production is included and after the social cost of production is included. $$\begin{array}{l|l|ll}\hline \text { Price } & \begin{array}{l}\text { Quantity } \\\\\text { Demanded }\end{array} & \begin{array}{l}\text { Quantity Supplied without paying } \\\\\text { the cost of the pollution }\end{array} & \begin{array}{c}\text { Quantity Supplied after paying } \\\\\text { the cost of the pollution }\end{array} \\\\\hline \$ 10 & 450 & 400 & 250 \\\\\hline \$ 15 & 440 & 440 & 290 \\\\\hline \$ 20 & 430 & 480 & 330 \\\\\hline \$ 25 & 420 &520 & 370 \\\\\hline \$ 30 & 410 & 560 & 410 \\\\\hline\end{array}$$

Is zero pollution possible under a marketable permits system? Why or why not?

Identify whether the market supply curve will shift right or left or will stay the same for the following: a. Firms in an industry are required to pay a fine for their carbon dioxide emissions. b. Companies are sued for polluting the water in a river. c. Power plants in a specific city are not required to address the impact of their air quality emissions. d. Companies that use fracking to remove oil and gas from rock are required to clean up the damage.

Show the market for cigarettes in equilibrium, assuming that there are no laws banning smoking in public. Label the equilibrium private market price and quantity as \(\mathrm{Pm}\) and \(\mathrm{Qm}\). Add whatever is needed to the model to show the impact of the negative externality from second-hand smoking. (Hint: In this case it is the consumers, not the sellers, who are creating the negative externality.) Label the social optimal output and price as Pe and Qe. On the graph, shade in the deadweight loss at the market output.

Give an example of a positive externality and an example of a negative externality.
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