Question

(Total: 36 pts) Suppose a chemical factory discharges waste product into a river resulting in significant damages to a local fishery. The marginal damage to the fishery (measured in terms of the value of lost fish stocks) is represented by the equation: MD = 10E The chemical factory can reduce its effluent flows by treating its waste products. Its marginal abatement cost (MAC) function is given by the equation: MAC = 1,200 - 5E.

d) (8pts) If the chemical factory has the property right to use the river, what bargaining will result in the socially efficient equilibrium? What are the net gains experienced by each party?

Answer 1

Anson The waste produt disebarged by Obraical factory therefore Mangiad dlange =(HD) / OF Marginal abartement Cast (MAC) = 1200 - SE @ The danes in place then the factony Smitg- 80vnite Then Marginal Abastement lost func) Squall to Marginaal damage cost A MAC = MOC] E-fowits] 10 € = 1200-SE 10x80 = 1200-580) 600= 1200-400 The last of Compliance 400 + 800 = 1800