Question

Cloud computing generates massive amount of carbon footprint from data centers used to achieve the cloud computing architecture. Suppose the state government now want to regulate carbon emission generated from cloud computing services, with the goal of reducing 40% of carbon emissions from the unregulated situation. There are two cloud computing companies operating in the state, Amacon Inc. and Goggle Inc., each emitting 1,000 tons of carbon per year into the atmosphere. Amacon can abate its emission with a marginal abatement cost function of MACa = 10Q + 8. Goggle can abate its emission with a MACg =3Q+30. A. Suppose the government uses a command-and-control approach, and requires each company to emit no more than 600 tons of carbon into the air. What is the total abatement cost for the society? B. What should be the optimal Pigovian tax rate? C. How much carbon will each firm abate if the government imposes the optimal Pigovian tax?

Answer 1