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Question: suppose there is a firm in the town of state...

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Suppose there is a firm in the town of State College that is polluting the water in several of the town’s lakes. The damages to the town from the pollution (the marginal emissions damages or MED), and the benefits to the firm of emitting the pollution (marginal emissions benefits or MEB), are shown in the figure below.

61 MED 50 MEB 20 Emissions

  1. d) (5points)How does your answer from part(c.)change if the initial property right in pollution is given to the firm? Once again, please indicate this range by specifying the correct areas on the figure.

  2. c) (5 points) What is the range of payments that the firm might make to the town following a mutually agreeable bargain? Please indicate this range by specifying the correct areas on the figure given above. (Hint: I suggest redrawing the figure with the areas labeled to may make it easier for you to specify these ranges.) You do not have to provide exact numerical values for parts (c.) and (d.) – just indicate the correct areas on the figure.

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