Question: Suppose a city releases 16 million gallons of raw sewage into a nearby lake. Table shows the total costs of cleaning up the sewage to different levels, together with the total benefits of doing so. (Benefits include environmental, recreational, health, and industrial benefits.)
a. Using the information in Table, calculate the marginal costs and marginal benefits of reducing sewage emissions for this city. See Cost and Industry Structure if you need a refresher on how to calculate marginal costs.
b. What is the optimal level of sewage for this city?
c. Why not just pass a law that zero sewage can be emitted? After all, the total benefits of zero emissions exceed the total costs.