(i) Suppose that a wood pulp mill is situated on a bank of the River X....

  

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(i) Suppose that a wood pulp mill is situated on a bank of the River X. The private marginal cost (MC) of producing wood pulp (in Shs per ton)is given by the function MC = 10 + 0.5Y where Y is tons of wood pulp produced. In addition to this private marginal cost, an external cost is incurred. Each ton of wood pulp produces pollutant flows into the river which cause damage valued at Sh10. This is an external cost, as it is borne by the wider community but not by the polluting firm itself. The marginal benefit (MB) to society of each ton of produced pulp, in Sh, is given by MB = 30 - 0.5Y (a) Draw a diagram illustrating the marginal cost (MC), marginal benefit (MB), external marginal cost (EMC) and social marginal cost (SMC) functions. 3mks (b) Find the profit-maximizing output of wood pulp, assuming the seller can obtain marginal revenue equal to the marginal benefit to society derived from wood pulp. 2mks (c) Find the pulp output which maximizes social net benefits. 2mks (d) Explain why the socially efficient output of wood pulp is lower than the private profit maximizing output level. 2mks (ii) Discuss any TWO broad types of institutional arrangement for managing aquifers. (iii) Discuss the operations of transferable/marketable emission permits. S (iv) Explain travel cost method and hedonic price method techniques of environmental valuation. 6mks 6mk (i) Suppose that a wood pulp mill is situated on a bank of the River X. The private marginal cost (MC) of producing wood pulp (in Shs per ton)is given by the function MC = 10 + 0.5Y where Y is tons of wood pulp produced. In addition to this private marginal cost, an external cost is incurred. Each ton of wood pulp produces pollutant flows into the river which cause damage valued at Sh10. This is an external cost, as it is borne by the wider community but not by the polluting firm itself. The marginal benefit (MB) to society of each ton of produced pulp, in Sh, is given by MB = 30 - 0.5Y (a) Draw a diagram illustrating the marginal cost (MC), marginal benefit (MB), external marginal cost (EMC) and social marginal cost (SMC) functions. 3mks (b) Find the profit-maximizing output of wood pulp, assuming the seller can obtain marginal revenue equal to the marginal benefit to society derived from wood pulp. 2mks (c) Find the pulp output which maximizes social net benefits. 2mks (d) Explain why the socially efficient output of wood pulp is lower than the private profit maximizing output level. 2mks (ii) Discuss any TWO broad types of institutional arrangement for managing aquifers. (iii) Discuss the operations of transferable/marketable emission permits. S (iv) Explain travel cost method and hedonic price method techniques of environmental valuation. 6mks 6mk

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I a Diagram illustrating the marginal cost MC marginal benefit MB external marginal cost EMC and social marginal cost SMC functions In the diagram the quantity of wood pulp produced Y is shown on the ... View the full answer