The government is trying to adopt a strategy that would optimize the pollution abatement policy of lead in an industrial region. The government estimated the Marginal social benefit curve as MSB=10000-qlead and the marginal cost of abatement as MCA=650+0.25qlead . where qlead represents the level of lead reduced.
(Hint: these equations are formulated as a function of decrease in pollution, where in the textbook the graphs are shown as functions of emission of pollutants.)
1.Find the social optimal level of lead in the region and explain what it means in terms of welfare costs.
2.Due to uncertainty, the government sets the standard 10% above the socially optimal level. What would be the deadweight lost in this case?
3.Now the government decided to use a fee to achieve the optimal and given the 10% deviation from the actual optimum, calculate the deadweight cost.
4.Graph all your answers and show the deadweight losses.
5.Suggest to the government which strategy should be used. Explain your answer.
Take a shot. Unfortunately, this question is easily answered by drawing a graph, which is not easily done here on Jiskha
a) what is the optimal level
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