If each firm’s production is associated with the release of 50 units of effluent, how much will each pay in total effluent fees when facing the $90 marginal effluent fee?
Among the identified point sources contributing to the pollution of Puget Sound are Dow Chemical (D) and Chevron (C). Each firm's cost functions are shown below.
MACD = 2.5AD MACC = 3.75AC
TACD = 1.25AD2 TACC = 1.875AC2
To meet the effluent limits under the Clean Water Act, each firm has an NPDES permit to release some fixed amount of effluents, so each must abate 30 units.
Dow pays the fee on all units above 36, or $90(50 – 36) = $1,260
Chevron pays the fee on all units above 24, or $90 (50 – 24) = $2,340
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