Problem 4 A chemical factory is situated next to a farm. Airborne emissions from the chemical...

 

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Problem 4 A chemical factory is situated 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 farm are summarized in the table below: Quantity of Emissions Marginal Benefit to Factory (in $1000s) Marginal Cost to Farmer (in $1000s) 0 100 200 300 180 160 140 120 0 10 20 30 400 100 40 500 600 700 800 900 80 60 50 60 40 20 0 70 80 90 a. What level of emissions would the chemical factory produce if it could ignore the effects of its pollution on farmers? Why? (5 points) b. What level of chemical emissions would the farmer prefer? Why? (5 points) c. From a welfare economic perspective (which is what we have been doing in class), what is the socially optimal level of emissions? Why? (5 points) d. How would Pigou solve this environmental conflict of interest? Be specific, providing numeric values where appropriate. (5 points) e. How would Coase solve this environmental conflict of interest? Be complete in providing all the interventions that Coase might suggest. (5 points) Problem 4 A chemical factory is situated 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 farm are summarized in the table below: Quantity of Emissions Marginal Benefit to Factory (in $1000s) Marginal Cost to Farmer (in $1000s) 0 100 200 300 180 160 140 120 0 10 20 30 400 100 40 500 600 700 800 900 80 60 50 60 40 20 0 70 80 90 a. What level of emissions would the chemical factory produce if it could ignore the effects of its pollution on farmers? Why? (5 points) b. What level of chemical emissions would the farmer prefer? Why? (5 points) c. From a welfare economic perspective (which is what we have been doing in class), what is the socially optimal level of emissions? Why? (5 points) d. How would Pigou solve this environmental conflict of interest? Be specific, providing numeric values where appropriate. (5 points) e. How would Coase solve this environmental conflict of interest? Be complete in providing all the interventions that Coase might suggest. (5 points)

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