The graph below illustrates the marginal costs and benefits of reducing emissions of benzene from year 2005 levels in a chemical factory. Currently, the firm is not reducing any emissions at all.

a. Suppose that state regulators tell the firm it must reduce emissions by 20 lbs per day from zero. On the graph, illustrate the areas that show (1) the total benefits of reduction; (2) the total costs of reduction; and (3) the total net benefits of reduction. Approximately, what are these values?

b. If, after achieving a reduction of 20 tons per day, firms then had to increase their reduction further from 20 to 21 lbs per day, what is the approximate marginal benefit? Marginal cost? Increase in net benefit?

c. Suppose it was discovered that the benzene emissions, in addition to doing harm via air pollution to people, were also contaminating the river. How would this affect the picture and the efficient cleanup level?

Transcribed Image Text:

$/1b MC of reduction MB of reduction $40 $30 $20 $10 0 0 10 20 30 40 50 60 70 Ibs benzene reduced/day