Question

In: Economics

There are two polluters in a specific region, each of whom is currently emitting 100 units...

There are two polluters in a specific region, each of whom is currently emitting 100 units of pollution for a total of 200 units of pollution in the region. The government wants to reduce total pollution by 60 units (i.e., A_ST = 60 ). For simplicity, ignore enforcement costs. The total and marginal abatement costs of each polluter are as follows:                                       

      TAC_1 = 0.2A_1^2 → MAC_1 = 0.4A_1

TAC_2 = 0.3A_2^2 → MAC_2 = 0.6A_2


Command-and-Control Approach

a. Would it be cost-effective to achieve the desired 60 units of total abatement by requiring each polluter to reduce pollution by 30 units? Why or why not?

b. What is the total cost to each polluter in this case? What is the total cost to society?

c. What is the deadweight loss to society of this policy? (Hint: derive answer to (f) first)

Solutions

Expert Solution

Rahul Sunny answered 1 year ago
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