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Wascana Chemicals produces paint and emits sulphur dioxide during production. However, the Ministry of Environment mandates all paint firms to reduce emissions. Answer the questions below using the given equations for marginal benefit of reducing and marginal cost of reducing emission:
MB = 3000 - E
MC = 2E
a) Determine the efficient level of abatement.
b) Show on a graph of marginal benefit and marginal cost.
c) If the Ministry of Environment mandates a minimum abatement level of 1700, show the effect on your graph.
d) Do you think the Ministry?s abatement level is efficient? Why/Why not?
Production elasticity:
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