What is the efficient level of abatement for each firm?

Two companies generate electricity in Wisconsin. One company, called “Coal,” gen- erates electricity exclusively using coal-fired plants while the other company, “Natural Gas,” generates electricity from natural gas. Coal’s marginal cost of pollution abate- ment is 10 + 0.5 ∗ A while Natural Gas’ is −5 + A. Marginal damage from pollution is equal to the marginal benefit from abatement, which equals to $20. In absence of environmental regulations from the EPA, the level of pollution for each firm is 30.

a. What is the efficient level of abatement for each firm?

What would be the deadweight loss from no abatement by either firm?

What would be the deadweight loss from each firm abating by half the total efficient abatement level in part (a)?

What would be the optimal pollution tax? How much revenue would it generate?

What would be the optimal number of pollution permits for a Cap & Trade system and the price of permits?

Compare the environmental policies

the calculation needed for both Caol and natural gas

Solutions

Expert Solution

Rahul Sunny answered 2 years ago

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