Question

Assume there are two polluting firms in two different cities. In
the business-as-usual outcome, Firm #1 would emit 20 units of
pollution (e_{1}=20) and Firm #2 would emit 20 units of
pollution (e_{2}=20).

Additionally, assume the marginal abatement costs for Firm #1
and Firm #2 are given below: MAC_{1} (x_{1}) =
0.5x_{1} & MAC_{2}
(x_{2}) = 2x_{2}

This pollutant is known to cause adverse health effects when in
high concentrations. Since the firms are in different cities,
assume the marginal social benefit of abatement differs across Firm
#1 and Firm #2. In particular: MSB_{1} (x_{1}) = 8
& MSB_{2} (x_{2}) = 18

a) (1 point) Suppose a cap-and-trade program is established between the two cities, and a total of 15 pollution permits are created. If each firm is given 7.5 of the tradable pollution permits, will the socially optimal outcome be achieved?

b) (1 point) Calculate the total costs, total benefits and net benefits of abatement in each city, under the cap and trade system. Ignore emission fees.

c) (1 point) What if you he had no policy at all? Would the no-action scenario achieve lower or higher Net Benefits than the cap and trade policy?

Answer #1

Given: BAU outcome: e1 = 20 units of pollution, e2 = 20 units of pollution

MAC1 = 0.5X1 , MAC2 = 2X2

MSB1 = 8, MSB2 = 18

a) Socially Optimum level of pollution for Firm1 : MAC1 = MSB1
=> 0.5X1 = 8 => X1 = 8/0.5 = **16 units of
pollution**

Socially Optimum level of pollution for Firm2 : MAC2 = MSB2
=> 2X2 = 18 => X2 = 18/2 = **9 units of
pollution**

Therefore, Socially optimum level of pollution = 16 + 9 =
**25 units of pollution.** Hence, Cap-and-trade
program will not achieve socially optimum outcome.

b) In case of Cap- and -Trade Policy

Total Cost = integration of MAC, Total Benefit = integration of MSB

for firm 1: Total Cost = = X12/4 = (7.5)2/4 = 56.25/4 = 14.06, Total Benefit = = 8X1 = 8*7.5 = 60

for firm 1: Total Cost = = X22 = (7.5)2= 56.25 , Total Benefit = = 18X2= 18*7.5 = 135

Net Benefit = total benefit - total cost

Firm1: 60- 14.06 = 45.94

Firm 2 : 135- 56.25 = 78.75

Net benefit = 45.94 + 78.75 = 124.69

c) In case of No Policy

Total Cost = integration of MAC, Total Benefit = integration of MSB

for firm 1: Total Cost = = X12/4 = (16)2/4 = 256/4 = 64, Total Benefit = = 8X1 = 8*16 = 128

for firm 1: Total Cost = = X22 = (9)2= 81 , Total Benefit = = 18X2= 18*9 = 162

Net Benefit = total benefit - total cost

Firm1: 128-64 = 64

Firm 2 : 162-81 = 81

Net Benfit = 64+ 81 = 145

Therefore, no-action scenario achieves higher Net Benefits than the cap and trade policy.

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...

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,...

Two polluting firms can control emissions of a pollutant by
incurring the following marginal abatement costs: MAC1 = $300?1,
and MAC2 = $100?2 where ?1, and ?2 are the amount of emissions
abated (i.e., pollution controlled) by firm 1 and firm 2
respectively. Assume that with no abatement of emissions at all,
firm 1 would release 15 units of pollution and firm 2 would release
10 units, for a total of 25 units. Assume the target level of
abatement is...

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 a different part of the world there a two different firms:
Firm A and Firm B. These firms are each emitting 100 tons of
pollution. Firm A faces marginal abatement cost MACA = 5A and Firm
B faces marginal abatement cost MACB = 2A where A is tons of
pollution abatement. The government’s control authority wishes the
firms to reduce total emissions to 130 tons using the Cap and Trade
system and plans to initially give each firm half...

Assume you have three firms with different marginal abatement
cost functions as follows: MAC1 =2q1
MAC2 =q2 MAC3 = 12q3
It has been determined that the total amount of pollution should
be reduced by 35 units.
(a) Find the cost-effective allocation of pollution abatement
for each firm.

Consider two polluting firms. The marginal cost of abatement
for firm 1 is MC1 =
e1 + 300, and the marginal cost of
abatement for firm 2 is MC2 =
3e2, where e1 and
e2 are the tons of pollution abatement by firms 1
and 2, respectively. Baseline pollution levels are
bl1 = 2000 and
bl2 = 2000.
Suppose the government sets a pollution reduction goal of 1600
total units of abatement.
Write down two equations that ensure that the...

Suppose that two firms emit a certain pollutant in Shreveport,
Louisiana. The marginal cost (MC) of reducing pollution for each
firm is as follows: MC1= 3e1and
MC2= 45e2, where e1and
e2are the amounts (in tons) of emissions reduced by the
first and second firms, respectively. Assume that in the absence of
government intervention, Firm 1 generates 500 units of emissions
and Firm 2 generates 500 units of emissions.
Suppose Shreveport regulators decide to reduce total pollution
by 400 units. If...

Suppose that two firms emit a certain pollutant in Shreveport,
Louisiana. The marginal cost (MC) of reducing pollution for each
firm is as follows: MC1 = 3e1 and
MC2 = 45e2, where e1 and
e2 are the amounts (in tons) of emissions reduced by the
first and second firms, respectively. Assume that in the absence of
government intervention, Firm 1 generates 500 units of emissions
and Firm 2 generates 500 units of emissions.
Suppose Shreveport regulators decide to reduce total...

Assume the following marginal abatement cost curves for
polluters 1 and 2 : MAC1=10-e1 and
MAC2=8-e1.
1. How much does polluter 1 and polluter 2 pollute without
government intervention?
2. This level of pollution should be reduced by 50%. What are
the marginal and total abatement costs of polluters 1 and 2 if a
command and control policy is applied?
3. What is the optimal outcome, or which allocation of emissions
minimize the abatement costs? Please calculate the total abatement...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 12 minutes ago

asked 19 minutes ago

asked 36 minutes ago

asked 36 minutes ago

asked 38 minutes ago

asked 43 minutes ago

asked 46 minutes ago

asked 57 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago