c


 c 
  

 

  
 
! "

= The slope of the line indicates the marginal reduction in

pollution for every increase of £1 of abatement
expenditure.
= It is constant at 0.5 indicating that every extra £1 spent
on abatement reduces pollution by one half a tonne.
#$ 
! " 

= In this example, pollution falls non-linearly as abatement

expenditure rises.
= When pollution is 8,000 tonnes per year an additional
expenditure of £3,000 reduces pollution by 2,000 tonnes.
= The marginal return for £1 additional expenditure is Ê
or
2,000/3,000 which is 2/3rd of a tonne per £1 spent on
abatement.
= When pollution has already been reduced to 3,000 tonnes, an
extra £3000 spent on abatement only reduces pollution by 500
tonnes.
= The marginal return for £1 of additional expenditure, Ê
is
now only 500/3000 or one sixth of a tonne per £1 spent.
 %
& '(

= In this example, network externalities cause the number of safe

passages to increase at an increasing rate as more is spent on
navigational aids.
= For example, an increase in expenditure on navigational aids by
£3,000 when expenditure is £6,000 raises safe passages by 500
from 3,500 to 4,000.
= The marginal return to £1 extra on navigational aids is 500/3,000
or 0.167
it takes £60 to get one more safe passage (3,000/500).
= However, when 14,000 is already being spent, a further increase
of £3,000 increases safe passages by 2,000 from 6,000 to 8,000.
= The marginal return from £1 spent on aids is now 2,000/3,000 or
0.667
it only takes £1.5 extra spending to get one more safe
passage (3,000/2,000).
 )
'  

= ÷p to
, expenditure on navigation aids encounters

increasing marginal returns.
= Îetween
 and
 expenditure encounters decreasing
marginal returns.
= |ach additional £1 spent increases the number of safe
passages by less than the previous £1 of expenditure.
= At
 safe passages reach a maximum of .
= Further expenditures encounter negative marginal returns.
= |ach additional £1 spent lowers the number of safe passages.
 *+
! "   

= ÷p to
, each additional £1 of expenditure reduces pollution,

but at a diminishing amount for each £1.
= At expenditure
, pollution reaches a minimum of Ê.
= If further amounts are spent, pollution actually rises.