The town of Pollutionville has two smelting factories, Factory A and B. Each factory produces air pollution. Factory A’s marginal abatement costs are given by MACA=20-0.5eA. Factory B’s marginal abatement costs are given by MACB=40-eB. The Pollutionville City Council wants to introduce a constant per unit emissions tax that will reduce total emissions from the two factories by 18.75% cost-effectively. The total tax receipts the Council would collect from such a tax would be $ _______________.
Answer :
In absence of any regulation
Set MACA = 0
20 - 0,5eA = 0
eA = 40
Set MACB = 0
40 - eB = 0
eB = 40
Total emission = eA+eB = 40+40 = 80
Abatement required = 80*18.75% = 15
Desire level of emission = eA+eB = 80 - 15 = 65
Or
eB = 65 - eA
In cost effeciency
MACA = MAC2
20-0.5eA = 40-eB
Set eB = 65 -eA
45 = 1.5eA
eA = 30
eB = 65 - eA = 65 - 30 = 35
MAC at thus level of emission
MACA = 20-0.5eA = 20-0.5eA = 20 - 05*30 = $5
MACB = 40 - eA = 40 - 35 = $5
So, emmission after regulation =eAR = eA + eB = 30 + 35 = 65
Total tax receipts = T*eAR = 5*65 = $325
Get Answers For Free
Most questions answered within 1 hours.