Suppose a farm that is polluting an underground water supply faces the following marginal costs for abating units of pollution:
1st unit abated, MC = $250
2nd unit abated, MC = $400
3rd unit abated, MC = $650
4th unit abated, MC = $950
The marginal benefit to society from this farm abating units of pollution are as follows:
1st unit abated, MB = $1000
2nd unit abated, MB = $800
3rd unit abated, MB = $650
4th unit abated, MB = $300
Why would it not be optimal for this farmer to abate four units of pollution?
◦ because it is not productively efficient
◦ because the total net benefit of abating the 4th unit is greater than the total cost
◦ because abating the 4th unit adds more to social costs than to social benefits
◦ because the total cost of abating 4 units is greater than the total benefits
◦ because the farmer has no way to charge a price for the units of pollution abated
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