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A city currently emits 16million gallons (MG) of raw sewage into a lake that is beside the city. Table 12.13shows the total costs (TC) in thousands of dollars of cleaning up the sewage to different levels, together with the total benefits (TB) of doing so. Benefits include environmental, recreational, health, and industrial benefits.

a. Using the information in Table 12.13calculate the marginal costs and marginal benefits of reducing sewage emissions for this city.

b. What is the optimal level of sewage for this city? How can you tell?

Short Answer

Expert verified

a. Marginal cost increases while marginal benefits decreases.

b. 4MGis the most optimum level of sewage.

Step by step solution

01

Step 1. Given information


Total costTotal benefits
16 MGCurrentCurrent
12 MG50800
8 MG1501300
4 MG5001850
0 MG12002000
02

Part (a)

The difference between successive total costs can be used to compute the marginal cost. Reducing sewage emissions costs 50,100,350,700dollars. The marginal benefits are 800,500,550,150respectively, and can be calculated by subtracting successive total benefits.

Externalities also incurred additional costs in the form of "external costs," lowering equilibrium quantity and raising equilibrium price.


Marginal costMarginal benefit
16 MG50800
12 MG100500
8 MG350550
4 MG700150
0 MG--
03

 Step 3: Part (b) Content Introduction

A benefit received from the use of one additional unit of commodity or service is referred to as a marginal benefit.

The marginal cost is the difference in overall production costs as a result of manufacturing one more unit.

04

Part (b)  Content Explanation

We can deduce from the table above that 4MGis the most ideal sewage level because,

The biggest gap between total cost and total revenue is the most optimal level of sewage.

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Most popular questions from this chapter

Is zero pollution possible under a marketable permits system? Why or why not?

Suppose a city releases 16million gallons of raw sewage into a nearby lake. Table 12.8shows the total costs of cleaning up the sewage to different levels, together with the total benefits of doing so. (Benefits include environmental, recreational, health, and industrial benefits.)


Total Cost (in thousands of

dollars)


Total Benefits (in thousands of


dollars)


16 million

gallons


Current situation
Current situation

12 million

gallons


50800
8 million gallons
1501300
4 million gallons
5001650
0 gallons
12001900

a. Using the information in Table 12.8, calculate the marginal costs and marginal benefits of reducing sewage emissions for this city. See Production, Costs, and Industry Structure if you need a refresher on how to calculate marginal costs.

b. What is the optimal level of sewage for this city?

c. Why not just pass a law that firms can emit zero sewage? After all, the total benefits of zero-emissions exceed the total costs.

The rows in Table 12.7 show three market-oriented tools for reducing pollution. The columns of the table show three complaints about command-and-control regulation. Fill in the table by stating briefly how each market-oriented tool addresses each of the three concerns.


Incentives to

Go Beyond


Flexibility about Where and How

Pollution Will Be Reduced


Political Process Creates

Loopholes and Exceptions


Pollution

Charges





Marketable

Permits





Property

Rights





In a market without environmental regulations, will the supply curve for a firm account for private costs, external costs, both, or neither? Explain.

Suppose you want to put a dollar value on the external costs of carbon emissions from a power plant. What information or data would you obtain to measure the external [not social] cost?

See all solutions

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