Assume two individuals, living by a lake, pollute the water. The marginal damage functions of two households is given by MD1=2E and MD2=6E. Because pollution is a non-rival and is bad, the aggregate marginal damage function is found by the vertical summation of the individual damage functions. Thus, MDt=8E, where MDt is the marginal damage total. The marginal abatement cost is MAC=20-2E

Calculate the socially efficient level of pollution?

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