Question

1. Now suppose country A imposes a tax t on A's production of q_A to curb emissions. Country B, however, is not taxed. A's cost function is now c_A(q_A) = 46q_A, while B's cost function is c_B(q_B) = 4q_B. World demand is P = 99 - Q. The amount of greenhouse gas emissions per unit is still 0.5, such that total world emissions are given by 0.5Q. What are total world emissions after country A enacts a carbon tax?

2. Consider the oil-producing countries of A, B, and C. Each has a marginal cost of zero. World demand is given by Q=674-P . Suppose the three countries form a cartel, and that none of them has an incentive to deviate from the cartel. By how many units lower is the total output of oil under the cartel relative to the Cournot solution?

Answer 1

1) 24.66

2) 168.5