Suppose an oil company discharges wastes into a land. These wastes contaminate the water and reduce the productivity of soil, which reduces the farm production. Let E be tonnes of chemical effluent discharged per month and MD=8E the marginal damage function. The oil company can reduce its effluent flows by treating its waste products and its marginal abatement cost function is MAC = 800-10E [It would be easier to answer this question if you draw MD and MAC curves].

1. Assume that the farmer owns the land. Calculate the socially optimal level of chemical effluent and the social net gain.
2. Now assume that the oil company owns the land. Calculate the socially optimal level of chemical effluent and the social net gain.

3.Do the social net gains differ under different ownership (company or farmer)? Explain?