Property

for the pollution has

Reducing pollution by any method

clearly defined, then it is not

Rights

incentive to do so in a cost

is fine

effect way

legally possible to avoid

cleanup

10. a. See the answers in the following table. The marginal cost is calculated as the change in total cost

divided by the change in quantity.

Total Cost (in thousands of dollars)

Total Benefits (in thousands of dollars)

[marginal cost]

[marginal benefit]

16 million

gallons

12 million

gallons

8 million

gallons

4 million

gallons

Current situation

Current situation

50 [50]

800 [800]

150 [100]

1,300 [500]

500 [350]

0 gallons

1,200 [700]

1,850 [350]

2,000 [150]

b. The “optimal” level of pollution is where the marginal benefits of reducing it are equal to the marginal

cost. This is at four million gallons.
554

c. Marginal analysis tells us if the marginal costs of cleanup are greater than the marginal benefit,
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