Suppose that the costs and benefits of achieving water quality in New York are modeled as shown below. Use these relationships for any or all of questions .
MSB = 80 - 2A MSC = 20 + 2A
TSB = 80A - A 2 TSC = 20A + A 2 ,
where A is the abatement level for conventional pollutants.
-At the benefit-based standard, total social benefits (TSB)
A) equal zero
B) are maximized
C) are minimized
D) equal TSC

Question

Quizplus · Accepted Answer

At the benefit-based standard, TSB is maximized. This can be seen from the MSB equation, which shows that as abatement level A increases, the marginal social benefit decreases (because the benefit of abatement decreases as pollution decreases). Therefore, the optimal A (i.e. the abatement level at which MSB = MSC) will be the one that maximizes TSB, since that is where the marginal benefit of abatement equals the marginal cost.

Suppose That the Costs and Benefits of Achieving Water Quality