Profits associated with polluting for Friedman Inc. are:
Profit = Total revenue
–
total cost = 40Q
–
2Q
2
, where Q = pollution emitted (in tons), and profits are
measured in dollars.
Marginal benefits (MB) of polluting, derived
from this function, are MB = 40
–
4Q. Marginal costs (MC) of
polluting also derived from this function are 4Q.
Friedman’s optimal
(private)
level of pollution is found
by solving MB= MC for Q, therefore, optimal
private level of pollution
for Friedman is Q = 5

(3
pts) Suppose that the damages affect only one person, Samuelson, and

Question

Profits associated with polluting for Friedman Inc. are: 
Profit = Total revenue 
–
total cost = 40Q 
–
2Q
2
, where Q = pollution emitted (in tons), and profits are 
measured in dollars. 
Marginal benefits (MB) of polluting, derived 
from this function, are MB = 40 
–
4Q. Marginal costs (MC) of 
polluting also derived from this function are 4Q. 
Friedman’s optimal 
(private) 
level of pollution is found 
by solving MB= MC for Q, therefore, optimal
private level of pollution
for Friedman is  Q = 5


(3
pts) Suppose that the damages affect only one person, Samuelson, and

anonymous · Answer

Suppose that the damages affect only one person, Samuelson, and Friedman has a clear 
right to emit as much as he likes. Samuelson and Friedman can negotiate at no cost. With 
no government regulatory programs, how much do you expect the firm to pollute? Why?

anonymous · Answer

@uri