Suppose a city releases 16 million gallons of raw sewage into a nearby lake. Table 12.8 shows 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.)

Table 12.8

a. Using the information in Table 12.8, calculate the marginal costs and marginal benefits of reducing sewage emissions for this city. 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.

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16 million gallons 12 million gallons 8 million gallons 4 million gallons 0 gallons Total Cost (in thousands of dollars) Current situation 50 150 500 1200 Total Benefits (in thousands of dollars) Current situation 800 1300 1650 1900