The marginal cost of pollution is MC = 2Q, while the marginal abatement cost is MAC = 12 - Q. Government regulators incorrectly estimate the marginal abatement cost at MAC_E = 9 - Q. The level of pollution, measured in tons of glop, is Q. If the government uses a quota to intervene in the market based on the incorrect estimate of marginal abatement cost, ____ units of pollution will be omitted. A) 2 B) 3 C) 4 D) 5

Question

Quizplus · Accepted Answer

The government aims to set the quota where the estimated marginal abatement cost (MAC_E = 9 - Q) equals the marginal cost of pollution (MC = 2Q). Setting these equal to each other gives 9 - Q = 2Q, solving for Q gives Q = 3. This means 3 units of pollution will be emitted based on the incorrect MAC estimate.

The Marginal Cost of Pollution Is MC = 2Q, While