Consider the Environmental Problem Created by Two Paint Companies That

Essay

Consider the environmental problem created by two paint companies that release chromium wastes into a nearby stream. The state authorities set a standard for the waterway that requires a combined abatement level (A) for chromium of 15 units. Suppose that the two firms, firm 1 and firm 2, face the following marginal abatement cost equations: MAC₁ = 3.2A₁ and MAC₂ = 0.8A₂, where costs are measured in thousands of dollars.
a. If the state uses a uniform standard, show that such a ruling would not be cost-effective. Which firm should be abating more, and which firm should be abating less?
b. Now find the cost-effective solution.