The emissions of waste water and schedule for cleaning costs for a natural gas drilling operation using hydraulic fracturing (hydrofracking) are found below:
$$\begin{array} { | l | l | }
\hline \begin{array} { l }
\text { Waste water emissions per day } \
\text { (gallons) }
\end{array} & \text { Marginal cost of cleaning } \
\hline 3,000 & \$ 8 \
\hline 6,000 & 9 \
\hline 9,000 & 10 \
\hline 12,000 & 11 \
\hline
\end{array}$$ a. If regulatory agency sets an emission fee of $10 and the plant's discharge is 3,000, gallons what is the best economic decision for the firm? Why?
b. With a $10 emission fee, what is the firm's best choice if its emissions are 12,000 gallons per day?

Question

The emissions of waste water and schedule for cleaning costs for a natural gas drilling operation using hydraulic fracturing (hydrofracking) are found below:
 $$\begin{array} { | l | l | } 
\hline \begin{array} { l } 
\text { Waste water emissions per day } \
\text { (gallons) }
\end{array} & \text { Marginal cost of cleaning } \
\hline 3,000 & \$ 8 \
\hline 6,000 & 9 \
\hline 9,000 & 10 \
\hline 12,000 & 11 \
\hline
\end{array}$$ a. If regulatory agency sets an emission fee of $10 and the plant's discharge is 3,000, gallons what is the best economic decision for the firm? Why?
b. With a $10 emission fee, what is the firm's best choice if its emissions are 12,000 gallons per day?

Quizplus · Accepted Answer

The Answer is a. If the regulatory agency sets an emission fee of $10 and the plant's discharge is 3,000 gallons per day, the best economic decision for the firm is to compare the marginal cost of cleaning with the emission fee. In this case, the marginal cost of cleaning for 3,000 gallons is $8, which is lower than the emission fee of $10. Therefore, it is economically beneficial for the firm to clean the waste water and comply with the emission fee.

b. With a $10 emission fee, the firm's best choice if its emissions are 12,000 gallons per day is to compare the marginal cost of cleaning with the emission fee. In this case, the marginal cost of cleaning for 12,000 gallons is $11, which is higher than the emission fee of $10. Therefore, it is economically beneficial for the firm to pay the emission fee instead of cleaning the waste water.

The Emissions of Waste Water and Schedule for Cleaning Costs