Homework #1 Answers Applications: 3.1 Open Access Problem 4.2 End-of-the-Pipe v. Pollution Prevention 5.0 Controlling Air Toxics

3.1 Open Access Problem, 1 # Mills Average CostTotal Cost Marginal Cost Average & Margin al Reven ue Average Profit Total Combi ned Profits Marginal Combi ned Profit 1$100 $200$100 2 $200$100$200$100$200$100 3 $300$100$200$100$300$100 4 $400$100$200$100$400$100 5$115$575$175$200$85$425$25 6$130$780$205$200$70$420($5) 7$145$1,015$235$200$55$385($35) 8$160$1,280$265$200$40$320($65) 9$175$1,575$295$200$25$225($95) 10$190$1,900$325$200$10$100($125) 11$205$2,255$355$200($5)($55)($155)

3.1 Open Access Problem, 2

3.1 Open Access Problem, 3 10 th mill gets $10 profit Reducing to 9 mills, yields total profits of $225 $225 > $10, usually.

4.2 End-of-the-Pipe v. Pollution Prevention

Efficiency = max. net benefit Efficient level = 100% –Total Cost = $100,000 –Total benefit ~ 100 x $30,000 = $3 million –Net Benefit ~ $2.9 million

5.0 Controlling Air Toxics 1.If Total Cost = Total Benefits, then Net Benefit (= TB-TC) is zero. Since efficiency means maximum net benefit, the efficiency standard says: don’t do it! 2.Portney assumes: Minimum number of lives saved is zero No health savings from preventing non-lethal exposures. 3.Regressive! Jane pays larger percentage of her income than Mary1 Answers.