Environmental Economics 6th Edition by Martha k Field,Barry Field

Exercise 3

Following are portions of the demand curves of three individuals for the water quality in a small pond. The water quality is expressed in terms of the parts per million (ppm) of dissolved oxygen (DO). Water quality improves at higher DO levels. The demand curves show the desired water quality of each individual in relation to the marginal costs of water quality improvements (the marginal cost of raising the DO level in the lake).a. Find the aggregate marginal willingness-to-pay curve for these three people.b. If the actual marginal cost of increasing DO is $12, what is the socially efficient level of DO in the lake, assuming these three people are the only ones involved?