Why doesn’t this economy want completely clean air?

Question
Submitted by jwzzlao9t on Thu, 2016-01-28 18:15

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  Assume Marginal Utility of cleaner air is given by MU1000* 1/ PPM Where utility is expressed in dollars ($), and PPM is the…

 

Assume Marginal Utility of cleaner air is given by

MU1000* 1/ PPM

Where utility is expressed in dollars ($), and PPM is the amount of pollution (expressed in parts per million of the pollutant) that has been removed from the air.

a) Sketch the Marginal Utility curve of cleaner air.

b) On a separate graph, sketch the Total Utility curve (Hint: Do not worry about translating

from marginal to total – that would take an integral – use what you see in (a) to form an

answer to b)).

c) Suppose the cost of reducing pollution by 1 PPM is always $10. What is the optimal amount

of pollution? Why doesn’t this economy want completely clean air?

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