456 Answer all the following Questions, and Sub-Parts. Show all your Work and La

Question

456 Answer all the following Questions, and Sub-Parts. Show all your Work and Label all Graphs and Axds Each Question (1,2, and 3) equally weighted-Each worth 33 points. 1) Use the Graph below for the following Questions. It shows the impact of tons of Phosphorus. Imagine it represents the environmental situation in a county where a Spring Water company (Aquagreen)and a Farm (Megahogz) both operate. Aquagreen has been using a lake for their water-and Megahogz's effluent is now impacting this. The graph illustrates through the Marginal Damage (MD) curve, the extra damage another ton of Effluent does to Aquagreen business, and through the Marginal Abatement curve (MAC) how much it costs Megahogz per ton to clean this up. All your answers should be based per day values. $1,000Marginal. Marginal damages abatement costs LetterSLetter 70,000 M 37,500 Q 22,500 P 50 $300 N 0 200 Emissions (tons/ day) If we assume Megahogz is undertaking no pollution control: 50 350 A) . How many tons of effluent are they discharging per day? . What is the marginal damage of the last ton? .What is the $ value of the total amount of damage this causes?

Explanation / Answer

a) 1). In case of no pollution control, the marginal abatement cost is 0 and the effluents produced is 350.

2). The marginal damage of the last tonne is $1000, that is the damage at 350 quantity of output

3) Total amount of damage caused = aread under the marginal damage curve. We assume it to be a triangle

So, 1/2 * (350-50) * 1000 = 500 * 300 = $150000

b). Coase theorem suggest that in a free market mechanism, the two parties will negotiate with each other so as to maximize their level of benefits. It should be noted that according this Coase theorem, the only role of the government in the market is to implement well defined property rights, and further negotiations will be taken care of by the market competitors itself. If aquagreen has full property right, it might allow Megahogz to produce certain amount of pollution by charging him a nominal fee for the same, which would maximize the welfare of both the agents. 200 units of effluent charges will be allowed to be emitted, at a fee of $300. This is evident from the graph where the Marginal abatement cost and marginal damage cost curves interesect each other.

c). If Megahorgs had property rights, then Aquagreen would have had to pay Megahorz to reduce its level of production of units to 200 units. In this case, Aquagreen would have to pay him 200 * 300 = $60,000. Aquagreens surplus will then be area M and that of Megahogz will be area L

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