for this plant is $25 per ton. In practice, the shape of this curve will be pollutant-specific (and might well be location- and time-specific).
Society is made better off if the firm increases its abatement from 0 to 100 tons. The benefit to society is the avoided damages of $25 per ton times the 100 tons abated, or $2,500. The cost to the firm of reducing its pollution is the sum of the incremental abatement costs. This is the area under the marginal abatement curve and it equals $1,250. The net gain to society following the firm’s abatement action is $1,250.
Is 100 tons of pollution abatement the economically optimal amount? All other things being equal, the answer is yes. More generally, the economically optimal level of pollution abatement occurs at the point where marginal benefits equal marginal costs. To see why, consider an additional ton of abatement from 100 to 101 tons. The benefit to society is $25. The marginal cost, however, is an amount greater than $25 because the marginal abatement curve rises above $25 for abatement levels greater than 100. For abatement levels greater than 100 tons, the incremental abatement costs to the firm outweigh the incremental benefits to nearby residents. Similarly, any level of abatement below 100 tons are not economically optimal. At any level less than 100 tons, the cost to the firm of reducing pollution by 1 more ton is less than the benefit to nearby residents of that incremental pollution reduction.
Note, however, that the illustrative example does not include consider-