Question

Part II. Kang Corporation operates a factory that produces labor economic textbooks. The factory is located next to a river. Mr. Roh, a fisherman in the downstream area of the river, experiences damages to his fishery business due to pollution caused by the factory. Assignment 2 Public Finance S. Go Q denotes the quantity of the labor economics textbooks produced a year. The supply curve, or the private marginal costs, of the Kang Corporation is P = 3Q + 2. The marginal damages to Mr. Roh’s fishery business is increasing as more labor economics textbooks are produces, and is known as MD = 2Q. The market demand for the textbook is P = -Q + 26.

10. What is the market equilibrium quantity of the textbook?

11. What is the market equilibrium price of the textbook?

12. What is the socially optimal level of the textbook?

13. What is the socially optimal price of the textbook?

14. What should be the Pigouvian tax rate to attain the socially optimal level of the textbook production?

15. What is the total tax revenue when the socially optimal level of the textbook is attained by the Pigouvian tax?

Now suppose there is another polluter, YS Corporation. Each company faces different marginal cost to reduce pollution. Denote Xi is the amount of pollution reduced by each company i. Then the marginal costs to reduce pollution are known as follows. MCKang = 3XKang MCYS = XYS Currently each company emits 100 units of pollution per year, thus the total amount of pollution is 200. The government wants to reduce the total amount of pollution by half.

16. If the government imposes an emissions fee at a flat rate, how much should be the costeffective emissions fee rate per each unit of pollution reduced to reduce the total amount of pollution by half?

17. How much unit of pollution will be reduced by Kang Corporation with the emission fees in Q.16?

18. How much unit of pollution will be reduced by YS Corporation with the emission fees in Q.16?

19. How much is the total revenue of the emission fees raised by the government?

20. Instead, to attain the same policy goal, the government has decided to issue 100 permits, each of which allows a company to emit a unit of pollution, and granted all the permits to YS Corporation. If two companies can trade the permits each other, how many permits will YS Corporation sell to Kang Corporation?

Answer #1

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 $ _______________.

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,...

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...

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...

Suppose that two power plants each releases 200 units of toxic
air into the atmosphere per year. Both firms are ordered by the
federal government to reduce their pollution levels. Let Q denote
the amount of pollution reduction. Firm A’s marginal costs
associated with pollution reduction are M C = 2Q − 20. Firm B’s
marginal costs associated with pollution reduction are MC = 3Q. The
marginal benefit of pollution reduction is MB = 240. (a) What is
the socially...

This problem set reviews the basic analytics of cost-effective
pollution control. Two
firms can reduce emissions of a pollutant at the following
marginal costs:
MC1 = $12·q1;
MC2 = $4·q2,
where q1 and q2 are, respectively, the amount of emissions
reduced
by the first and
second firms. Assume that with no control at all, each firm
would be emitting 40 units of
emissions (for aggregate emissions of 80 tons), and assume that
there are no significant
transaction costs.
1) Compute...

There are three firms in the car production industry, where the
production of cars gen- erates pollution. All three firms have the
same damage function: each additional unit of emissions damages
society $15. However, all three firms have different abatement
technologies. The marginal abatement cost is 5 + 0.2A for Volvo and
5 + 0.25A for Ford. Finally, the marginal abatement cost for Toyota
is A − 5, where A is abatement. All three firms only care about
maximizing profits...

You can use graphs or simple algebra to answer this
question; either way, be sure
to show all of your work and/or explain your
reasoning.
Two firms can reduce emissions of a pollutant at the
following marginal costs:
MC1 = $3 q1
MC2 = $1 q2
where q1 and q2 are, respectively, the amount of
emissions reduced by the first
and second firms. Total pollution-control cost functions
for the two firms are
Respectively:
TC1 = $100 + $60
(q1)2
TC2...

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