Chapter 18: Q3. (page 711)
Assume that scientific studies provide you with the following information concerning the benefits and costs of sulfur dioxide emissions:
Benefits of abating (reducing) emissions:MB= 500 - 20A
Costs of abating emissions:MC= 200 + 5A
whereAis the quantity abated in millions of tons and the benefits and costs are given in dollars per ton.
a. What is the socially efficient level of emissions abatement?
b. What are the marginal benefit and marginal cost of abatement at the socially efficient level of abatement?
c. What happens to net social benefits (benefits minuscosts) if you abate one million more tons than the efficient level? One million fewer?
d. Why is it socially efficient to set marginal benefits equal to marginal costs rather than abating until total benefits equal total costs?
Short Answer
The socially efficient level for abatement is 12 million tons.
The marginal benefit and marginal cost at the socially efficient level of reduction would be 260.
In both cases, if one more million ton or fewer is abated from the efficient level, the social net benefit would fall.
It is socially efficient to set marginal benefit equal to marginal cost rather than total benefits to total cost because we want to maximize the additional benefits given the additional cost.