Coase Theorem Suppose there is a polluter (paper mill dumping wastewater upriver

Question

Coase Theorem Suppose there is a polluter (paper mill dumping wastewater upriver) and a victim of pollution (a city down the river drawing water form it). Depending on the level of pollution, the marginal damages to the city (MD) and the marginal costs of abating, or getting rid of, pollution (MAC) are as follows MD MAC Emissions by polluter 0 If negotiation and side payments are allowed between the mill and the city (remember the law is on the city's side), 35. What level of emissions will we observe? a. e b. 0 c. e d. Cannot say. a o 36. What (in terms of the letter-defined areas), will be the total damages from pollution? b. b c, c d. atbtc 37. What (in terms of the letter-defined areas), will be the total pollution abatement costs? a. 0 b. b . d. atb+c

Explanation / Answer

35. Option C . e* level of emission

36. Option B. b total damage from pollution

37. Option C . c total pollution abatement

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