Guelph Fare 2700 – A Polluted River Has 20 Homes

Submitted by Simon Brooke • November 2, 2018

A polluted river has 20 homes on it that rent for $1,000 each per month. Homes on a similar river that is not polluted rent for $2,000 each per month. The river is polluted because there are two factories on the river that dump polluted water in the river. Each factory could install a filter that would cost $5,000 each and would reduce the pollution in the water to a negligible level. The external cost in this problem is