Find the efficient level of abatement.
Suppose that the benefits and costs of water quality policy have been estimated as follows:
MSB = 40 – 0.8A MSC = 10 + 0.2A
TSB = 40A – 0.4A2 TSC = 10A + 0.1A2,
where A is the percentage of pollution abatement and the benefits and costs are measured in thousands of dollars.
To find the efficient abatement level, AE, find the point where MSB equals MSC.
MSB = MSC
40 – 0.8A = 10 + 0.2A
AE = 30 percent
This means that an abatement level of 30 percent achieves an efficient allocation of resources.
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