Assume that scientific studies provide you with the following information concerning the benefits and costs of sulfur dioxide emissions:
Benefits of abating (reducing) emissions: ……………..MB - 500 - 20A
Costs of abating emissions: ……………………………MC - 200 + 5A
Where A is the quantity abated in millions of tons and the benefits and costs are given in dollars per ton.
a. What is the socially efficient level of emissions abatement?
b. What are the marginal benefit and marginal cost of abatement at the socially efficient level of abatement?
c. What happens to net social benefits (benefits minus costs) if you abate one million more tons than the efficient level? One million fewer?
d. Why is it socially efficient to set marginal benefits equal to marginal costs rather than abating until total benefits equal total costs?