Question: In the figure below, MB1 is the marginal benefit that town 1 gets from abatement; MB2 is the marginal benefit for town 2. MC, A

In the figure below, MB1 is the marginal benefit that town 1 gets from abatement; MB2 is the marginal benefit for town 2. MC, A is the marginal cost of abatement for source A, and MC, B is the marginal cost of abatement to source B. Use this figure to answer the following questions.

(a) If source A is located in town 1, what is the efficient level of abatement for town 1? Why?
(b) If source A is located in town 1, what level of pollution tax will achieve the efficient level of pollution for town 1? Why will that level of tax achieve the efficient level?
(c) If source A is in town 1, and if source B is in town 2, is a uniform pollution tax or a uniform pollution standard (that is, a tax or a standard that is the same in both places) more efficient? Why?

16 MB1 1MB2 MC,A 8 2 4 6 8 10 12 4 Abatement

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