Quantity of Clean Air (%) Marginal Cost ($) Marginal Benefit ($) 0 50,000 600,00
ID: 1238363 • Letter: Q
Question
Quantity of Clean Air (%) Marginal Cost ($) Marginal Benefit ($)0 50,000 600,000
20 150,000 360,000
40
200,000 200,000
60 300,000 150,000
80 400,000 120,000
100 Infinite 0
a)What is the optimal degree of air cleanliness?
b)What is the optimal degree of air pollution?
c) Suppose that a state provides subsidies for a company to build plants that contribute to air pollution. Cleaning up this pollution causes the marginal cost of air cleanliness to rise by $210,000 at each degree of air cleanliness. What is the optimal degree of air cleanliness after this change?
Explanation / Answer
a) optimal will be when
MC=MB
optimal degree of air cleanliness=40%
b) optimal degree of air cleanliness=100-40= 60%
c)at 20
MC=210000+150000= 360000
MB=360000
optimal degree of air cleanliness after this change= 20%