Examine the following marginal costs and marginal benefits associated with air c
ID: 1095577 • Letter: E
Question
Examine the following marginal costs and marginal benefits associated
with air cleanliness in a given locale:
(6 points)
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 $210,000 at each degree of air cleanliness. What is the optimal degree of air cleanliness after this change?
Quantity of Clean Air (%)
Marginal Cost ($)
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
Explanation / Answer
a) the optimal degree of cleanliness is when marginal cost = marginal benefit. This is when quality of air = 40%
b) if the optimal is when quality of air is 40%, then quality of polution is 100% - 40% = 60%
c) so you have to add$210,000 to each number on the left side of the chart. when the number on the left - the number on the right (marginal cost= marginal benefit) you have the optimal number. at 20% the current cost is 150,000+ 210,000 = 360,000 . the current cost is 360,000. so the optimal degree of air cleanliness after the change is 20%
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