Question
In: Economics
Two firms can reduce emissions of an air pollutant at the following marginal costs: MAC1 =...
Two firms can reduce emissions of an air pollutant at the following marginal costs:
MAC1 = 500q1 MAC2 = 300q2 (1)
where q1 and q2 are, respectively, the amount of emissions reduced by the first and second firm. Total abatement cost functions for the two firms are, respectively:
TAC1 = 1000 + 250(q1)^2 TAC2 = 1000 + 150(q^2) (2)
Assume that with no control at all, each firm would be emitting 40 units of emissions (for aggregate emissions of 80 tons), and assume that there are no significant transaction costs.
a. What are the total industry costs of abatement (for both firms combined) if they employ a uniform emission standard to achieve an aggregate reduction (for both firms combined) of 48 tons of emissions?
b. What are the marginal abatement costs for firm 1 and for firm 2 at the outcome under the standard considered in part (a)? Does this outcome fulfill the equimarginal principle? Why or why not?
c. Compute the cost-effective allocation of control responsibility to meet the required total reduction of 48 tons of emissions (in other words, what’s the cheapest way for these two firms to abate 48 tons?). How many units of emissions will each firm abate under a cost-effective allocation instead of a uniform allocation? Briefly, compare this result with the one you derived in (a).
d. What are the total industry costs of abatement (for both firms combined) under this costeffective allocation? Compare this result with the one you derived in (a).
Solutions
Rahul Sunny answered 3 years agoRelated Solutions
Suppose that two polluting firms have marginal abatement costs given by the following equations: MAC1 =...
Suppose that two polluting firms have marginal abatement costs
given by the following equations:
MAC1 = 50 – 5e1 and MAC2 = 40 – 4e2
where e1 and e2 are the emission levels of each firm
respectively. The regulator’s goal is to reduce total pollution
from the two firms to 8 units.
a) Suppose that the regulator requires that each firm reduce
their emissions to 4 units (i.e. they use a uniform standard).
Compute each firm’s total abatement costs under...
1. Two firms can reduce pollution at the following marginal abatement costs: MC1 = 12Q1 MC2...
1. Two firms can reduce pollution at the following marginal
abatement costs: MC1 = 12Q1 MC2 = 4Q2 where Qi is the abatement
(pollution control) of firm i = 1, 2. In the absence of regulation,
each firm would emit 40 units of emissions. Assume that each firm’s
objective is to minimize its compliance costs
(c) The aggregate marginal cost function for this two-firm
industry is: MC = 3Q Suppose the marginal benefit of pollution
control is given by: MB...
In this situation you have two firms that face separate marginal abatement cost functions of MAC1...
In this situation you have two firms that face separate marginal
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units of abatement that occur by a firm. Both companies can sell up
to two units of output and each unit of output generates one unit
of pollution. The price for each unit of output is $15.00 that
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1. Below are the marginal abatement costs of two sources: MAC1 = 60Q1 MAC2 = 40Q2...
1. Below are the marginal abatement costs of two sources: MAC1 =
60Q1 MAC2 = 40Q2 where Q1 and Q2 are, respectively, the amount of
emissions reduced by the first and second firms. Assume that with
no control at all, each firm would be emitting 60 units of
emissions or a total of 120 units for both firms. 1) Compute the
cost-effective allocation of control responsibility if a total
reduction of 90 units of emissions is necessary. 2) Draw two...
Firm A Firm B Emissions Total abatement costs Marginal abatement costs Emissions Total abatement costs Marginal...
Firm A
Firm B
Emissions
Total abatement costs
Marginal abatement costs
Emissions
Total abatement costs
Marginal abatement costs
4
0
0
4
0
0
3
1
1
3
2
2
2
3
2
2
6
4
1
6
3
1
12
6
0
10
4
0
20
8
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Two firms (firm 1 and firm 2) can control pollution with the following marginal abatement costs:...
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MAC1=100q1
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where q1 and q2 are the amount of pollution
reduced by the first and second firms. Assume that with no controls
at all, each firm would be emitting 100 units of pollution, or 200
units for both firms.
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Two firms (firm 1 and firm 2) can control pollution with the following marginal abatement costs:...
Two firms (firm 1 and firm 2) can control pollution with the
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MAC1=100q1
MAC2=200q2
where q1 and q2 are the amount of pollution
reduced by the first and second firms. Assume that with no controls
at all, each firm would be emitting 100 units of pollution, or 200
units for both firms.
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mechanism to achieve a pollution goal of 100 units of total
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Q1) The government seeks to reduce the emissions of gunk through a tax. The marginal benefits...
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second firms. a) What are the total industry...
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