Question: Two types of consumers (workers and retirees) share a community with a polluting cheese factory. The pollution is nonrival and nonexcludable. The total damage to workers is p^2 where p is the amount of pollution and the total damage to retirees is 3p^2. Thus marginal damage to workers is 2p and maginal damage to retirees s 6p. According to an analysis by consulting eingineers, the cheese factory saves 20p-p^2 by pollouting p, for a marginal savings 20-2p.
a) Find the aggregate (including both types of consumers) marginal damage for the public bad.
b) Graph the marginal savings and aggregate marginal damage curves with polloution on horizontal axis.
c) How much will the cheese factory pollute in the absence of any regulation or bargaining? What is this society's optimal level of pollution?
d) Starting from the uncontrolled level of pollution claculated in part c, find the marginal willingess to pay for polloution abatement, A, for each consumer class (Abatement is reduction in pollution; zero abtement would be associated with the unctrolled level of pollution.) Find the aggegate marginal willingness to pay for abatement.
e) Again starting from the uncontrolled level of pollution, what is the firm's marginal cost of pollution abatement? What is the optimal level of A?