Suppose the total benefit and total cost to society of various levels of pollution reduction are as follows:

a. Complete column (4).

b. Use optimization in levels to show that if the U.S.
Environmental Protection Agency (EPA) wants to maximize total net benefit, then it should require 3 units of pollution reduction.

c. Complete columns (5) and (6), starting with the step from 0 to 1 unit of pollution reduction.

d. Show that the Principle of Optimization at the Margin would also tell the EPA to require 3 units of reduction.

Transcribed Image Text:

(1) (2) (3) Pollution Total Total Reduction Benefit Cost (4) (5) (6) Total Net Marginal Marginal Benefit Benefit Cost X X 0 0 0 1 20 9 2 38 20 3 54 33 4 68 48 5 80 65 6 90 90 84