Imagine a waste processing plant that is causing air pollution (measured in tons per year), and has marginal abatement costs given by MAC1 = 100 – 0.005E1. The marginal damages from the pollution is given by MD = 0.003E. The government establishes liability laws and a judge rules that the town must be compensated for total damages.
The polluter has the opportunity to adopt new abatement technology that would lower its costs to MAC2 = 60 – 0.003E2. Calculate their incentive to adopt the new technology?