Question

Two types of consumers (workers and retirees) share a community with a polluting cheese factory. The pollution is nonrival and nonexcludable. The total damage to workers is p² where p is the amount of pollution and the total damage to retirees is 3p². Thus marginal damage to workers is 2p and marginal damage to retirees is 6p. According to an analysis by consulting engineers, the cheese factory saves 20p−p² by polluting p, for a marginal savings of 20−2p.

Find the aggregate (including both types of consumers) marginal damage for the public bad.

Answer 1

The aggregate marginal damage for the public bad created by the pollution from a cheese factory is 8p, which is the sum of the marginal damages to workers (2p) and retirees (6p).

Step-by-step explanation:

The student has asked to find the aggregate marginal damage for the public bad created by a polluting cheese factory. To calculate this, we combine the marginal damage to workers and retirees. The marginal damage to workers is 2p and for retirees, it is 6p. Therefore, the aggregate marginal damage of pollution for both workers and retirees is 2p + 6p = 8p. This represents the extra cost on society for every additional unit of pollution emitted by the cheese factory. Understanding the aggregate marginal damage is crucial for policymakers to address the negative externality and reach a social optimum where market activities do not harm societal welfare.