The figure below illustrates the marginal cost of pollution control for a small

Question

The figure below illustrates the marginal cost of pollution control for a small pulp mill. Local authorities have just imposed an effluent charge of $1.00 per gallon of effluent in an effort to reduce water pollution.

a. How much effluent will the mill now discharge, if it discharged 22,000 gallons daily prior to the effluent charge? b. Iflocal authorities raise the charge to S1.20 per gallon. How much effluent wil1 the mill now discharge? 1.80 1.60 1.40 1.20 1.00 80 2 4 6 8 10 12 14 16 18 20 Quantity of Effluents per Day (1,000s of

Explanation / Answer

(a) The local authorities have imposed an effluent charge of $1.00 per gallon of effluent.

The provided figure shows that small pulp mill can control 13,000 gallons of effluent discharged at marginal cost of $1.00.

So, with imposition of $1.00 per gallon, it would be beneficial for firm to control 13,000 gallons of effluent discharged as the cost per gallon of such control is same as the effluent charge.

So, mill will control or reduce its discharge by 13,000 gallons.

Calculate discharge by mill after imposition of effluent charge -

Discharge = Discharge prior to effluent charge - Discharge controlled

               = 22,000 gallons - 13,000 gallons

               = 9,000 gallons

So, the mill will now discharge 9,000 gallons per day.

(b) The local authorities have imposed an effluent charge of $1.20 per gallon of effluent.

The provided figure shows that small pulp mill can control around 14,000 gallons of effluent discharged at marginal cost of $1.20.

So, with imposition of $1.20 per gallon, it would be beneficial for firm to control 14,000 gallons of effluent discharged as the cost per gallon of such control is same as the effluent charge.

So, mill will control or reduce its discharge by 14,000 gallons.

Calculate discharge by mill after imposition of effluent charge -

Discharge = Discharge prior to effluent charge - Discharge controlled

               = 22,000 gallons - 14,000 gallons

               = 8,000 gallons

So, the mill will now discharge 8,000 gallons per day.

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