1. A coal-powered plant that generates electricity for the western part of North Carolina has been given a quota by the Environmental Protection Agency that limits them to releasing 3 million particles of contaminants per day. Based on studies of the effect of this type of air pollution on the public, if the release of particles were decreased to 2 million per day, the public would gain $800,000 each year in additional labor income and higher property values. It would increase the operating costs of your plant by $500,000 per year to cut back from 3 to 2 million particles per day.
a) Is this situation resulting in an efficient level of emissions? Why or why not?
b) Suppose a tax of $1 per particle were imposed on the daily average of particle emissions. How does this change the decision to cut emissions back from 3 to 2 million particles per day?