The government is trying to adopt a strategy that would optimize the pollution abatement policy of lead in an industrial region. The government estimated the Marginal social benefit curve as MSB=10000-qlead and the marginal cost of abatement as MCA=650+0.25qlead . where qlead represents the level of lead reduced.
(Hint: these equations are formulated as a function of decrease in pollution, where in the textbook the graphs are shown as functions of emission of pollutants.)
1.Find the social optimal level of lead in the region and explain what it means in terms of welfare costs.
2.Due to uncertainty, the government sets the standard 10% above the socially optimal level. What would be the deadweight lost in this case?
3.Now the government decided to use a fee to achieve the optimal and given the 10% deviation from the actual optimum, calculate the deadweight cost.
4.Graph all your answers and show the deadweight losses.
5.Suggest to the government which strategy should be used. Explain your answer.
Take a shot. Unfortunately, this question is easily answered by drawing a graph, which is not easily done here on Jiskha
a) what is the optimal level
To find the social optimal level of lead in the region, we need to find the level at which the marginal social benefit (MSB) equals the marginal cost of abatement (MCA).
1. The marginal social benefit (MSB) is given by the equation MSB = 10000 - qlead, where qlead represents the level of lead reduced.
2. The marginal cost of abatement (MCA) is given by the equation MCA = 650 + 0.25qlead.
To find the optimal level, we set MSB equal to MCA and solve for qlead:
10000 - qlead = 650 + 0.25qlead
Combining like terms, we get:
1.25qlead = 9350
Dividing both sides by 1.25, we find:
qlead = 7480
Therefore, the optimal level of lead in the region is 7480 units reduced.
In terms of welfare costs, the optimal level represents the point where the additional benefits from reducing lead pollution (MSB) equals the additional costs of reducing lead pollution (MCA). At this level, the society achieves an efficient allocation of resources, maximizing overall welfare by balancing the benefits and costs of lead abatement.