Question

Los Angeles County has the worst urban air quality across all major metropolitan areas in the United States. Assume the California Air Resources Board is considering whether to set a uniform emission standard or a regionally-based emission standard, where one standard is set for Los Angeles County and another for the rest of the state. MSB, MSC, and MCE of abatement for the two regions have been estimated as follows:

MSB (LA) = 500 - 0.75A

MSC (rest) = 150 - 0.25A

MSC (all) = 0.5A

MCE (all) = 0.01A

*Note: MSC (all) and MCE (all) apply to both regions.

a. Find the numerical value of the efficient level of abatement for each region. Graph the MSB (LA), MSB (rest), and MSC (all) functions on the same diagram showing this result.

b. Based on these results, are the differentiated (higher) standards for LA supported on efficiency grounds? Why?

c. A uniform abatement standard is also being considered across the State of California of 300 units. Does this policy lead to over-regulation or under-regulation for LA? Does this policy lead to over-regulation or under-regulation for the rest of the state?

Answer 1

Abatement	MSB (all)	MSC (LA )	MSC (all).	MCE	MPC (LA)	MPC (all)
100	425	125	50	1	124	49
200	350	100	100	2	98	98
300	275	75	150	3	72	147
400	200	50	200	4	46	196
500	125	25	250	5	20	245
600	50	0	300	6	0	294

Note :-

1) MPC = MSC - MCE

2) The plotting of MSC of LA is :-

For reduction of first 100 units the cost is 125

Thus when we reduce 600-100 we get 500

So the plotting is 125 at 500 units

Answer a :-

Efficient level of abatement of LA is 100 units that is 500 units

Efficient level of abatement for others is 200 units that is 400 units.

Answer b :-

No higher standard for LA is not supported as it is clearly evident from the graph that MSC of LA is below MSC of other states , thus only a control of 100 units will be sufficient to bring

MSB = MSC

Answer c :-

An abatement of 300 units will lead to over regulation of 200 units for LA and 100 units for Other states