Assume Marginal Utility of cleaner air is given by
MU1000* 1/ PPM
Where utility is expressed in dollars ($), and PPM is the amount of pollution (expressed in parts per million of the pollutant) that has been removed from the air.
a) Sketch the Marginal Utility curve of cleaner air.
b) On a separate graph, sketch the Total Utility curve (Hint: Do not worry about translating
from marginal to total – that would take an integral – use what you see in (a) to form an
answer to b)).
c) Suppose the cost of reducing pollution by 1 PPM is always $10. What is the optimal amount
of pollution? Why doesn’t this economy want completely clean air?