Marginal benefits and costs of abatement. 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 an emission 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 20-ton-per-day reduction, 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. What is the efficient level of reduction in emissions per day? Suppose it was discovered that the benzene emissions, in addition to doing harm via air pollution to people, were also contaminating the Columbia River. How would this affect the picture and the efficient clean-up level?
 

$/ib 50 40 30 20 10 MB of reduction 10 20 40 MC of reduction 30 50 lbs benzene reduced/day 60 70 80