The figure below shows the marginal damage and marginal abatement cost curves for sulfur dioxide emissions in North Zulch. EPA officials have imposed an emissions tax of $100 per ton of sulfur dioxide.
-The optimal level of sulfur dioxide emission is not zero because it would cost $_______ to avoid or abate the last ton of pollution, while the benefit of abating the last ton is $_______.

Question

The figure below shows the marginal damage and marginal abatement cost curves for sulfur dioxide emissions in North Zulch. EPA officials have imposed an emissions tax of $100 per ton of sulfur dioxide. 
-The optimal level of sulfur dioxide emission is not zero because it would cost $_______ to avoid or abate the last ton of pollution, while the benefit of abating the last ton is $_______.

Quizplus · Accepted Answer

The optimal level of sulfur dioxide emission is where the marginal abatement cost (MAC) equals the emissions tax. This occurs at a level of 20 tons of sulfur dioxide emission, which is where the MAC curve intersects the $100 emissions tax line. At this level of emissions, the marginal benefit of abatement is zero (i.e., the marginal damage curve intersects the MAC curve at this point). Therefore, any further reduction in emissions would cost more than the benefit of the reduction, making it not worth it. Thus, the optimal level of sulfur dioxide emission is not zero, but 20 tons, and the cost of avoiding the last ton of pollution is $300, while the benefit of abating the last ton is $0.

The Figure Below Shows the Marginal Damage and Marginal Abatement