Question

In: Economics

4A. Consider two rubber companies, Firestone and Goodyear. Both companies create air pollution when they produce...

4A. Consider two rubber companies, Firestone and Goodyear. Both companies create air pollution when they produce rubber. The air pollution can be reduced by the firm, but the abatement comes at a cost. Specifically,

MACF = 800 – 4eF, where eF = tons of emissions produced by Firestone
MACG = 200 – eG, where eG = tons of emissions produced by Goodyear

the government wants to use an effluent tax to reduce emissions to 200 tons. What is the optimal number of emissions for Goodyear (firm G) under this policy?

Using the information from question 4A, what is the optimal number of emissions for Firestone (firm F) under this policy?

Given the information from question 4A, what tax level reduces emissions in the most cost-effective way for the firms when they operating at their optimal number of emissions under this policy?

Using the information from question 4A, calculate the total cost (tax cost + abatement cost) for firm F under this effluent tax policy?

Using the information from question 4A, calculate the total cost (tax cost + abatement cost) for firm G under this effluent tax policy

Solutions

Expert Solution

Given

MACF=800-4eF

In absence of any regulation,

MACF=0

800-4eF=0

eF=200

MACG=200-eG

In absence of any regulation,

MACG=0

200-eG=0

eG=200

a)

Now regulation requires that eG+eF=200

or eF=200-eG

Optimal effluent requires that

MACF=MACG

800-4eF=200-eG

set eF=200-eG

800-4*(200-eG)=200-eG

800-800+4eG=200-eG

5eG=200

eG=40 (optimal effluent from firm G)

b)

eF=200-eG=200-40=160 (optimal effluent from firm F)

c)

MACF at optimal effluent=800-4eF=800-4*160=160

MACG at optimal effluent=200-eG=200-40=160

Optimal Tax=MACG=MACF=$160

d)

In case of firm F, effluent is reduced from 200 to 160 units. Effluent is reduced bt 40 units

Total effluent by firm F=eF=Effluent in case of no regulation-abatement=200-AF

MACF=800-4eF=800-4*(200-AF)=4AF

Total abatement cost is given as

Tax payment=Effluent*Tax rate=160*160=$25600

Total Cost=3200+25600=$28800

e)

In case of firm G, effluent is reduced from 200 to 40 units. Effluent is reduced bt 160 units

Total effluent by firm G=eG=Effluent in case of no regulation-abatement=200-AG

MACG=200-eG=200-(200-AG)=aG

Total abatement cost is given as

Tax payment=Effluent*Tax rate=40*160=$6400

Total Cost=12800+6400=$19200

Rahul Sunny answered 2 years ago
Next > < Previous

Related Solutions

Suppose there are two paper mills on an island. Both mills produce air pollution that is...
Suppose there are two paper mills on an island. Both mills produce air pollution that is non-rival and non-excludable. All of the island’s citizens are negatively affected by the air pollution, but Children and Adults are affected differently. Specifically, the marginal benefits of pollution abatement (A) to the Child population is given by MBChild = 162 − 3A and the marginal benefits of pollution abatement to the Adult population is given by MBAdult = 108−2A. Not surprisingly, pollution abatement is...
Suppose there are two paper mills on an island. Both mills produce air pollution that is...
Suppose there are two paper mills on an island. Both mills produce air pollution that is non-rival and non-excludable. All of the island’s citizens are negatively affected by the air pollution, but Children and Adults are affected differently. Specifically, the marginal benefits of pollution abatement (A) to the Child population is given by MBChild = 162 − 3A and the marginal benefits of pollution abatement to the Adult population is given by MBAdult = 108−2A. Not surprisingly, pollution abatement is...
The Fireyear and Goodstone rubber companies whose factories produce finished rubber and sell it in to...
The Fireyear and Goodstone rubber companies whose factories produce finished rubber and sell it in to the highly competitive world market at a fixed price of $60 per ton. The process of producing a ton of rubber produces a ton of air pollution that affects the environment. This 1:1 relationship between rubber output and pollution is fixed at both factories. Let the output of Fireyear and Goodstone be QF and QG, respectively. The cost formulas for each firm are as...
Some theorists contend that companies that create pollution should report the social cost of that pollution...
Some theorists contend that companies that create pollution should report the social cost of that pollution in income statements. They argue that such companies are indirectly subsidized as the cost of pollution is borne by society while only production costs (and perhaps minimal pollution fines) are shown in the income statement. Thus, the product sells for less than would be necessary if all costs were included. Assume that the FASB is considering a standard to include the social costs of...
6. Air pollution problem. Consider an airshed in which there is one major contributor to air...
6. Air pollution problem. Consider an airshed in which there is one major contributor to air pollution--a cement-manufacturing plant whose annual production capacity is 2.500,000 barrels of cement. Figures are not available to determine whether the plant has been operating at capacity. Although the kilns are equipped with mechanical collectors for air pollution control, the plant still emits 2.0 lb of dust per barrel of cement produced. There are two types of electrostatic precipitators that can be installed to control...
Consider a world with two countries, Home and Foreign, both able to produce two goods: cloth...
Consider a world with two countries, Home and Foreign, both able to produce two goods: cloth and tablet computers. The production of both goods uses capital and labor in fixed proportions, with the tablets industry using more capital per worker than the cloth industry. The units of each input needed to produce one unit output are given by: capital Labor Cloth 1 2 Tablets 2 1 Both countries have 150 units of capital available for production, but the Home country...
Some companies and municipalities are switching to a four-day workweek to reduce traffic congestion, air pollution,...
Some companies and municipalities are switching to a four-day workweek to reduce traffic congestion, air pollution, and stressed employees. Compressing the workweek into four 10-hour days sounds pretty good to you. You would much prefer having Friday free to schedule medical appointments and take care of family business, in addition to leisurely three-day weekends. As a manager at Skin Essentials, a mineral-based skin care products and natural cosmetics company, you are convinced that the company’s 200 employees could switch to...
Consider the issue of air pollution. Use an appropriate diagram to support your written answer to...
Consider the issue of air pollution. Use an appropriate diagram to support your written answer to the following questions. i. If the government uses ‘command and control’ is the outcome of the policy likely be efficient? ii. Why might a Pigouvian tax be preferred to ‘command and control’ policy?
Consider the following two projects for Copper Mountain Sports. Both project are projected to produce cash...
Consider the following two projects for Copper Mountain Sports. Both project are projected to produce cash flows for 5 years at which time the equipment will have become technologically obsolete. For these projects, calculate the "cross-over rate". The cross -over rate is the discount rate where both projects would have the same NPV. Year Snow Shoes Snowmobiles 0 -$250,000 -$250,000 1 $25,000 $150,000 2 $80,000 $160,000 3 $200,000 $75,000 4 $190,000 $50,000 5 $150000 $5000 a) 33.67% b) These two...
What actions can be taken to lower air pollution emissions? Consider actions that can be taken...
What actions can be taken to lower air pollution emissions? Consider actions that can be taken at the individual, community, and government levels.
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT