Determining the Optimal Amount of Pollution

To decide by how much to reduce cardboard production to coincide with the socially efficient amount, we can use the marginal principle.

Marginal PRINCIPLEIncrease the level of an activity if its marginal benefit exceeds its marginal cost, but reduce the level if the marginal cost exceeds the marginal benefit. If possible, pick the level at which the marginal benefit equals the marginal cost.

Marginal benefit: pollution savings per additional ton.

Marginal cost: loss of consumer and producer surplus per additional ton of cardboard produced.

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Determining the Optimal Amount of Pollution

To decide by how much to reduce cardboard production to coincide with the socially efficient amount, we can use the marginal principle.