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Allocative efficient level of abatement

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    Assignment ID: FG133134297

    Suppose that two firms emit the same chemical pollutant when producing good X. The marginal cost of reducing pollution for each firm is as follows: MAC1 = 30 + 5Z1 and MAC2 = 15 + 20Z2, where Z is the amount of pollution reduction. The marginal socialbenefit (MSB) of total pollution reduction is MSB = 500 – 5ZT, where ZT = Z1 + Z2.

    a) How much pollution reduction does each firm should contribute in order to achieve the allocative efficient level of abatement? Show all your work.

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