2. A chemical factory is located next to a farm. Airborne emissions from the chemical factory...

 

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2. A chemical factory is located next to a farm. Airborne emissions from the chemical factory damage crops on the farm. The marginal benefits of emissions to the factory and the marginal costs of damage to the farmer are as follows: Quantity of emissions Marginal benefit to factory ($000) Marginal cost to farmer ($000) 100 200 300 400 500 600 700 800 900 320 280 240 200 160 120 80 40 0 110 130 150 170 190 210 230 250 270 a) Suppose that there are no laws preventing the chemical factory from emitting pollution. How much pollution will it emit? Briefly explain why. b) From an economic point of view, what is the socially optimal level of emissions from the chemical factory? Briefly explain why, using a graph to support your answer. c) Again, assuming there are no laws preventing the factory from polluting, describe how the socially efficient outcome could be achieved using the Coase Theorem. d) While the Coase Theorem solution from part (c) is economically efficient, do you think it is equitable? Briefly explain why or why not. 2. A chemical factory is located next to a farm. Airborne emissions from the chemical factory damage crops on the farm. The marginal benefits of emissions to the factory and the marginal costs of damage to the farmer are as follows: Quantity of emissions Marginal benefit to factory ($000) Marginal cost to farmer ($000) 100 200 300 400 500 600 700 800 900 320 280 240 200 160 120 80 40 0 110 130 150 170 190 210 230 250 270 a) Suppose that there are no laws preventing the chemical factory from emitting pollution. How much pollution will it emit? Briefly explain why. b) From an economic point of view, what is the socially optimal level of emissions from the chemical factory? Briefly explain why, using a graph to support your answer. c) Again, assuming there are no laws preventing the factory from polluting, describe how the socially efficient outcome could be achieved using the Coase Theorem. d) While the Coase Theorem solution from part (c) is economically efficient, do you think it is equitable? Briefly explain why or why not.