Question: Suppose that there are 300 residents affected by a local source of pollution each with a marginal willingness to pay given by MWTP, =

Suppose that there are 300 residents affected by a local source of

Suppose that there are 300 residents affected by a local source of pollution each with a marginal willingness to pay given by MWTP, = 100-10q, where q is the level of a unit of air quality improvement. Suppose that a unit of air quality improvement costs $9,000. a. (1 mark) Find the social MWTP function for improvement in air quality. b. (3 marks) Draw MWTP,, total MWTP and marginal cost curves on a diagram. c. (1 mark) What is the efficient amount of air quality improvement? d. (2 marks) Is there a market failure here? Explain. e. (5 marks) How does the Coase theorem provide a solution to this particular problem? Explain. f. (2 marks) Why might it be hard to reach a solution in part (e)? What is the implication of this?

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