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In: Economics

Two western coal power plants (Astoria and Boardman) in Oregon emit SO2 as a result of...

Two western coal power plants (Astoria and Boardman) in Oregon emit SO2 as a result of combustion. SO2 abatement costs increase with the amount of abatement for all power plants, but because of their different sizes and technology, they have different abatement costs. The Marginal Abatement Cost (MAC) equations for each firm are MC=4*QA & MC=8*QB, where QA is the amount of abatement at each the Astoria plant and QB is the amount of abatement at Boardman. Currently, they each emit 15 tons of SO2 for a total of 30. How much will the government collect in taxes?

Solutions

Expert Solution

Both the coal power plants emit 15 tons of SO2.

So marginal abatement cost for the powerplant in Astoria is (4*15) = 60 units.

Marginal abatement cost for the powerplant in Boarman is (8*15) = 120 units.

After the abatement the powerplants will emmit a minimum amount of SO2 and thus govt. will collect taxes according to the imposed tax rate.(Not mentioned in the question)

I think this is the correct answer for this question as tax rate is not mentioned. Dont flag the answer if it is otherwise.

Rahul Sunny answered 2 years ago
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