Consider the environmental problem created by two chemical plants that release arsenic into a nearby river. The authorities set a standard for the waterway that requires a total abatement level (A) for arsenic of 16 units. Suppose that the two firms, firm 1 and firm 2, face the following marginal abatement cost equations: MAC₁ = 3A₁ and MAC₂ = A₂, where costs are measured in thousands of dollars.

2. If the state uses a uniform standard, show that such a ruling would not be cost-effective. Which firm should be abating more, and which firm should be abating less?
4. Now find the cost-effective solution.

Answer rating: 100% (QA)

Uniform Standard vs CostEffective Solution for Arsenic Abatement Uniform Standard In a uniform stand... View the full answer