What is the socially optimal level of pollution reduction

Reference no: EM132184042

Question - Two firms are ordered by the federal government to reduce pollution levels. Firm's A MC=150-3Q and firms' B MC=10+9Q. The marginal benefit of pollution reduction is MB=250-4Q.

a) What is the socially optimal level of pollution reduction for each firm?

b) Compare the social efficiency of the following outcomes:

1) Require all firms to reduce pollution by the same amount?

2) Charge a common tax per unit of pollution or 3) require all firms to reduce pollution by the same amount but allow cap and trade, pollution permits to be sold and bought.

Reference no: EM132184042

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