Suppose a Farm That Is Polluting an Underground Water Supply

question 106

Multiple Choice

Suppose a farm that is polluting an underground water supply faces the following marginal costs for abating units of pollution: 1st unit abated,MC = $250
2nd unit abated,MC = $400
3rd unit abated,MC = $650
4th unit abated,MC = $950
The marginal benefit to society from this farm abating units of pollution are as follows:
1st unit abated,MB = $1000
2nd unit abated,MB = $800
3rd unit abated,MB = $650
4th unit abated,MB = $300
What is the total net benefit to society if this farm engages in the socially optimal amount of pollution abatement?

• A)$0
• B)$650
• C)$1150
• D)$1300
• E)$2250

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Definitions:

Identical Costs

Refers to costs that are the same across different products, services, or processes.

X-Inefficiency

A situation in which a firm fails to utilize its resources efficiently because of a lack of competitive pressure.

Average Total Costs

The total cost of production divided by the quantity produced, representing the per-unit cost of producing a good or service.