The table below provides information about costs and benefits from the production of
pesticides that pollutes a lake used yatrout farmer.
TP of pesticide, 0,1,2,3,4,5,6,7
Pesticide produced MC. 0,5, 15, 30, 50, 75, 105, 140.
Marginal external cost. 0, 33,67,100,133,167,200,233.
Marginal social benefit. 250,205,165,180,100,75,55,40.
a)If no one owns the lake and if there areno regulation of pollution,what is the quantity
of pesticides produced per week and what is the marginal cost of pollution borne by
the trout farmer
b)If the trout farm owns the lake,how much pesticides is producedper week and what
does the pesticides producer pay the farmerbper tonne
c)If the pesticides producer owns the lake, and if a pollution free lake rents for $100 a
week, how much pesticides is produced per week and how much rent per week does
the farmer pay the pesticides producer for the use of lake
d)Compare the quantities of pesticides in parts b and c and explain the relation ship between them
a) If no one owns the lake and if there are no regulations of pollution, the quantity of pesticides produced per week is 7 tonnes and the marginal cost of pollution borne by the trout farmer is 233.
b) If the trout farm owns the lake, the quantity of pesticides produced per week is 5 tonnes and the pesticides producer pays the farmer $75 per tonne.
c) If the pesticides producer owns the lake, and if a pollution free lake rents for $100 a week, the quantity of pesticides produced per week is 4 tonnes and the farmer pays the pesticides producer $100 per week for the use of the lake.
d) The quantity of pesticides produced in part b is higher than the quantity of pesticides produced in part c. This is because in part b, the trout farmer is able to capture the external cost of pollution, whereas in part c, the external cost of pollution is internalized by the pesticides producer.