1. Suppose a city releases 16 million gallons of raw sewage into a nearby lake. The table below shows the
total costs and marginal costs of cleaning up the sewage to different levels, together with the total benefits of doing so. (Benefits include environmental, recreational, health, and industrial benefits.)
A. What is the optimal level of sewage for this city? Explain making references to economic concepts.
B. Why not just pass a law that firms can emit zero sewage? After all, the total benefits of zero emissions exceed the total costs. Explain making references to economic concepts.
Attached is a chart with further information. Thank you.
Total Cost (inMarginal CostTotal BenefitsMarginalthousands of(in thousands(in thousandsBenefit (indollars)of dollars)of dollars)thousands ofdollars)16 millionCurrentCurrentgallonssituationsituation12 million5050800800gallons8 million1501001300500gallons4 million5003501650350gallons0 gallons12007001900250