The pollution levels for two firms, A and B, are Qa and Qb, respectively, measured in...
The pollution levels for two firms, A and B, are Qa and Qb, respectively, measured in tons per year. Say profit for A as a function of pollution is 25Qa – Qa2 / 2 so that the marginal benefits of pollution function is MBA = 25-Qa. Similarly, profits for B = 40Qb – 2Qb2 so that MBB= 40-4Qb. How much is each firm going to produce unregulated in the market?
Select one:
a. Qa = Qb = 10 tons
b. 35 tons total
c. Qa = 25 tons; Qb = 10 tons
d. Qa = 50 tons, Qb = 20 tons
Homework Answers
Ans.- (C)
They will produce until marginal benefit for each firm is 0.
MBA = 25 -Qa
0 = 25- Qa
Qa = 25
MBB = 40-4Qb
0 = 40-4Qb
Qb= 10
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