From an economic efficiency perspective, what is the socially optimal level of pollution? State the fundamental condition (in terms of marginal cost and marginal benefit) that defines this level.

Solution: The socially optimal level of pollution (or optimal abatement level) is where the net social benefit is maximized. This occurs when the marginal benefit of reducing one more unit of pollution (which is equal to the Marginal Damage (MD) averted) is exactly equal to the Marginal Abatement Cost (MAC) incurred in achieving that reduction. Economists argue that the optimal pollution level is rarely zero, as the cost of achieving the last few units of abatement usually exceeds the resulting benefit.