Suppose a chemical factory discharges waste products into a river resulting in significant damages to a local fishery. The marginal damage and the marginal abatement cost (MAC) are given by:
MDC = 10E and MAC = 1,200-5E
a. What level of emissions will occur if the chemical factory is not regulated?
b. What would the total abatement costs for the chemical factory be if emissions are controlled and reduced to zero?
c. If no liability laws are in place, what damages will the chemical factory inflict on the fishery?
d. If the government puts in place a liability law that requires the chemical factory to compensate the fishery for the damages it causes, what level of emissions will take place and what are the total costs of compliance for the chemical company?