Question

Suppose a firm’s marginal abatement function is given by MAC = 120 –2.5E, and it faces...

Suppose a firm’s marginal abatement function is given by MAC = 120 –2.5E, and it faces a $110 per unit emissions tax.

a.How many units of emissions will the firm abate, what will be its total abatement cost and its total tax bill?
b.How much better off will the firm be if it abates this much compared to if it does not abate at all, given the$110 per unit emissions tax.
c.Suppose that, instead of a $110 per unit emissions tax, the government offers the polluter $110 for each unit of emissions it abates. How many units will the firm abate and what will be its net gain?

Homework Answers

Answer #1

In absence of any regulation,

Firm will emit in such a way that MAC=0

i.e. 120-2.5E=0

E=48

If A is abatement level. E=48-A

MAC=120-2.5E=120-2.5*(48-A)=120-120+2.5A=2.5A

a)

Firm will abate in such a way that MAC=Tax rate i.e.

2.5A=110

A=44 units

Firm will abate 44 units of emissions

b)

Total abatement Cost, TAC is given by

Total additional tax if it has not abated=44*110=$4840

Benefit of abatement=4840-2420=$2420

c)

Firm will abate as long as MAC is lower or equal to subsidy rate i.e. $110

2.5A=110

A=44 units

Firm will abate 44 units of emissions

Net gain=Total subsidy amount-TAC=44*110-2420=$2420

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A firm’s marginal cost of abatement is MAC = 3A. One unit of output generates one...
A firm’s marginal cost of abatement is MAC = 3A. One unit of output generates one unit of emissions. Suppose that its baseline (unregulated) emissions level is 100 units. Also suppose that profits are so high that the firm will always produce at its capacity of 100 units regardless of whatever policies below are implemented. (a) Suppose the government imposes a regulation that the firm cannot emit more than 50 units. How much will the firm abate? (b) A team...
Suppose there are two firms and they pollute the environment. Their total abatement cost is given...
Suppose there are two firms and they pollute the environment. Their total abatement cost is given below.   TC(R1)=1/2(R1)^2, TC(R2)=2/3(R2)^3/2 Suppose the government wants to reduce pollution by 12 units. 1. Find the cost-efficient way to abate 12 units of pollution. How many of these 12 units would Firm 1 abate? 2. Find the cost-efficient way to abate 12 units of pollution. How many of these 12 units would Firm 2 abate? 3. Choose all the policies below that do not...
Question: Suppose there are two firms and they pollute the environment. Their total abatement cost is...
Question: Suppose there are two firms and they pollute the environment. Their total abatement cost is given... Suppose there are two firms and they pollute the environment. Their total abatement cost is given below.   TC(R1)=1/2(R1)^2, TC(R2)=2/3(R2)^3/2 Suppose the government wants to reduce pollution by 12 units. 1. Find the cost-efficient way to abate 12 units of pollution. How many of these 12 units would Firm 1 abate? 2. Find the cost-efficient way to abate 12 units of pollution. How many...
Two polluting firms emit 200 tons of SO2 each, with Marginal Abatement Costs given by MAC1=...
Two polluting firms emit 200 tons of SO2 each, with Marginal Abatement Costs given by MAC1= 2X1 and MAC2= 3X2, respectively. Xi represents the level of abatement for each firm i, in tons. The government wants to reduce total SO2 emissions by 30% and decides to impose a uniform cap on emissions, with each firm receiving 140 allowances for free (firms don’t pay for allowance). a) In a first moment assume polluters are not allowed to trade, so each firm...
Emissions (tons/month) Marginal Abatement Cost Total Abatement Cost Total Subsidy at $150/ton Total tax bill at...
Emissions (tons/month) Marginal Abatement Cost Total Abatement Cost Total Subsidy at $150/ton Total tax bill at $150/ton Total Costs 10 0 0 9 15 15 8 30 45 7 50 95 6 70 165 5 95 260 4 120 380 3 150 530 2 185 715 1 230 945 0 290 1,235 50. What optimal level of emissions would the above firm choose given the subsidy level detailed above? 51. If the above firm emits the optimal level of emissions...
1. Consider the problem of two polluting sources in the region, each of which generated 10...
1. Consider the problem of two polluting sources in the region, each of which generated 10 units of pollution for a total of 20 units released into the environment. The government determined that emissions must be reduced by 12 units across the region to achieve the ”socially desirable level of pollu- tion”. Each firm faces different abatement cost conditions modelled as follows: for Polluter 1, marginal abatement cost is MAC1 = 26- 2.6E1. For Polluter 2, marginal abatement cost is...
In this situation there are two independent firms, each emitting 15 units of pollutants into the...
In this situation there are two independent firms, each emitting 15 units of pollutants into the environment for a total of 30 units in their region. The government imposes an abatement standard of 15 units. The polluter’s cost functions are as follows: TAC1 = 5 + 0.75(A1)^2 and MAC1 = 2A1 and TAC2 = 5 + 0.5(A2)^2 and MAC2 = A2, where A is units of abatement undertaken by a firm a. Suppose that the government mandates each company to...
Two polluting firms emit 200 tons of SO2 each, with Marginal Abatement Costs given by MAC1=...
Two polluting firms emit 200 tons of SO2 each, with Marginal Abatement Costs given by MAC1= 2X1 and MAC2= 3X2, respectively. Xi represents the level of abatement for each firm i, in tons. The government wants to reduce total SO2 emissions by 30% and decides to impose a uniform cap on emissions, with each firm receiving 140 allowances for free (firms don’t pay for allowance). What is the market price of SO2 abatement? How many permits are traded between firms,...
A monopoly firm faces a demand curve given by the following equation: P = $500 −...
A monopoly firm faces a demand curve given by the following equation: P = $500 − 10Q, where Q equals quantity sold per day. Its marginal cost curve is MC = $100 per day. Assume that the firm faces no fixed cost. You may wish to arrive at the answers mathematically, or by using a graph (the graph is not required to be presented), either way, please provide a brief description of how you arrived at your results. Excel please!!!...
Urgently required ( only d,e ,f ,g,h,i) A monopoly firm faces a demand curve given by...
Urgently required ( only d,e ,f ,g,h,i) A monopoly firm faces a demand curve given by the following equation: P = $500 − 10Q, where Q equals quantity sold per day. Its marginal cost curve is MC = $100 per day. Assume that the firm faces no fixed cost. You may wish to arrive at the answers mathematically, or by using a graph (the graph is not required to be presented), either way, please provide a brief description of how...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT