2. Elm Industries receives profits from polluting according to the formula:
π = 10Q −Q^2
where Q = pollution emitted (in tons), and profits are measured in dollars. The damages
associated with pollution from this facility are estimated to be:
D = Q^2 + 2Q
(a) Draw a graph of both the marginal benefits and marginal damages from pollution
curves, labeling all axes, intercepts, and slopes.
(b) If Elm Industries could ignore the damages it caused, how much Q would it
produce? How much profit would it earn at this level of production? How much
would its total damages be? What would be the net benefits (i.e., difference
between profits and damages)?
(c) What is the efficient level of Q for this firm? How much profit would Elm
Industries earn at this level of production? How much would total damages be?
What would be the net benefits?