Problems and Applications OUT () Exercise 1 allat (b) This exercise shows how to compute the optimal rate of pollution and will help with a problem in the text. Table 13.1 indicates various levels of pollution that might be experienced in a lake near your home. It hox3 also contains information concerning the value of damages imposed on society by the pollution and the cost to society of cleaning the lake to particular levels. For example, the lake could be made pollution- free with an expenditure of $140,000, but "Is it worth it?" Complete questions 1-7 to find out. Table 13.1 Annual value of damages associated with polluted water and costs of reducing pollution (1) (2) ( 3 ) (4) 1 5) Marginal benefits Marginal cost Quantity of pollution Monetary value of pollution Costs of treating of pollution (units of waste material of damages abatement polluted water abatement per 100 cubic feet (thousands of (thousands of (thousands of (thousands of of water) dollars) dollars dollars dollars $325 $0 225 $100 5 $5 150 15 -NWAUTO 95 35 55 60 25 90 0 140 1. Assume that without any controls, polluters will annually impose $325,000 of damages on the lake's users by generating 6 units of waste for every 100 cubic feet of water. To clean out the sixth unit of pollutants (that is, reduce the quantity of pollution from 6 units to 5) costs $5,000. The value of the benefits gained is $100,000. Complete the rest of column 3. 2. Complete column 5 in Table 13.1 in the same way. The first calculation has been done for you. 3. Should the annual level of pollution be reduced from 6 units to 5? 4. Which of the following reasons explains why annual pollution should (or should not) be reduced from 6 to 5 units of pollution? a) The optimal rate of pollution has been reached. b) The marginal social benefits exceed the marginal social cost from reducing the pollution. c) The marginal social costs exceed the marginal social benefits from reducing the pollution. d) It is always best to reduce pollution whenever possible. 191