Question

There are two polluting firms in Freshen City USA, a popular tourist destination. In the recent past, the pollution in Freshen City has become a public health emergency. The pollution is negatively impacting the health of residents and tourism revenues. The citizens want the City to regulate the amount of pollution produced by the two firms. Below is data on the benefits and costs of abatement of pollution in Freshen City. Abatement Pollution MSB MAC = MSC Social Social Social TB то NB 655 $65 $5 $60 55 20 $165 $70 60 $240 Part 1: Complete the table above Part 2: Graph the MAC (MSC of abatement) and the MSB of abatement Part 3: Determine the optimal level of abatement, and hence pollution, in Freshen City USA. Recommendation: Scale x-axis in increments of ten units Scale y-axis in increments of five units Social Science (SS) Learning Outcome 1 Social Science (SS) Learning Outcome 2 Social Science (SS) Learning Outcome 3

Answer 1

Answer:

Part 1: Completed table is given below:

Abatement	Pollution	MSB	MSC	Social TB	Social TC	Social NB
0	50	65	5	65	5	60
10	40	55	20	120	25	35
20	30	45	45	165	70	0
30	20	35	60	200	130	-25
40	10	25	65	225	195	-40
50	0	15	70	240	265	-55

Calculations:

1. Social total benefit (TB) is the MSB plus the MSB for the previous abatement.

The first value will be the same as MSB (65). The second value of ST will be 65 plus the next value of MSB (65 + 55 = 120), The successive values will be: (120+45 = 165), (165 + 35 = 200). (200 + 25 = 225), (225 + 15 = 240)

2. Social total cost (TC) will be calculated like above, but for MSC values. So first value is same as MSC (5). The second value will be (5+20 = 25), subsequent values are: (25 + 45 = 70), (70 + 60 = 130), (130 + 65 = 195), (195 + 70 = 265)

3. Social net benefit (NB) is the difference between MSB and MSC, that is, benefit over cost:

formula: MSB - MSC. So the values will be: (65 - 5 = 60), (55 - 20 = 20), (45 - 45 = 0), (35 - 60 = -25), (25 - 65 = -40), (15 - 70 = -55)

Part 2:

The graph of MAB and MSC is:

  

MAC CMSC MSB o s 10 is 20 25 30 35 40 4iS so SS 60 65 70

Part 3:

From the table, we see that MSB = MSC = 45 when abatement is 20 and pollution 30.

From the graph we see that MSB curve intersects MSC curve at 45, and abatement at 20. From the table we know that when abatement i 20, pollution is at 30.

So, optimum level of abatement is 20 and pollution 30.