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Externalities: Pollution - Optimal Effluent Fee for society

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A. The cost of pollution emanating from the chemical industry (in $ Bil) is:
C = 3P + 3P^2
The cost of Pollution controls (in $ Bil) is:
C= 7 - 5P
a. What is the optimal effluent fee from society's point of view?
b. If the cost of pollution control falls by $1 billion for every level of pollution would your answer change?

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Solution Summary

This problem explains how the market equilibrium is affected by the externalities. More precisely, how we can calculate the optimal effluent fees for maximizing the societal benefits. Shows the calculations in systematic manner for easy understanding.

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1. The cost of pollution emanating from the chemical industry (in $ Bil) is:
C = 3P + 3P2
The cost of Pollution controls (in $ Bil) is:
C= 7 - 5P

a.What is the optimal ...

Purchase this Solution
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