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There are two industries in Environmuck. Each spews a noxious substance called "gunk" into the air. It has been decided that gunk emissions must be reduced by 20 units.
The industries have different pollution reduction cost functions:
Industry X's marginal cost of pollution reduction: MCx = 4Rx
Industry Y's marginal cost of pollution reduction: MCy = Ry, where MCx and MCy are the marginal costs of pollution reduction for the two industries, and Rx and Ry are the amounts of pollution reduction undertaken by the industries.
One suggestion is to mandate that each industry must reduce its gunk emissions by 10 units, that is, Rx = Ry = 10. In this way, ...
The marginal costs of pollution reduction are embedded.