Externalities: Pollution – Optimal Effluent Fee for society
A. The cost
of pollution emanating from the chemical industry (in $ Bil) is:
C = 3P + 3P^2
The cost of Pollution controls (in $ Bil) is:
C= 7 – 5P
a. What is the optimal effluent fee from society’s point of
view?
b. If the cost of pollution control falls by $1 billion for
every level of pollution would your answer change?
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