Examine the following marginal costs and marginal benefits associated with air c

Question

Examine the following marginal costs and marginal benefits associated with air cleanliness in a given locale:

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

What is the optimal degree of air cleanliness?
What is the optimal degree of air pollution?
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%

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