Policy analysts in the Department of Natural Resources have estimated that the marginal benefits from water pollution abatement are given by the function MB = 0.90 - 0.03A where A is a measure of the abatement intensity. Industry experts have estimated that the marginal cost of abatement activity is MC = 0.30 + 0.09A.
a. Determine the optimal level of abatement activity.
b. Explain what happens when new technology reduces the marginal cost of abatement to MC = 0.25 + 0.06A.