Question

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 abate pollution uniformly, that is 10 units of pollution each. What are the cost implications (TAC and MAC) of this mandate?

b. Assume that the government institutes an emission charge of $16 dollars per unit of pollution. How many units of pollution would each polluter abate? Is the emission charge a cost-effective strategy for meeting the standard?

Answer #1

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Suppose there are two firms: Firm A and Firm B. These firms are
each emitting 50 tons of pollution. Firm A faces marginal abatement
cost MACA = 6A and Firm B faces marginal abatement cost MACB = 12A
where A is tons of pollution abatement. The government wishes for
the total amount of pollution to be 80 tons.
1. (1.5 points) What is the total cost of abatement if the
government mandates that Firm A abate 20 tons (such that...

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 there are two firms: Firm A and Firm B. These firms are
each emitting 50 tons of pollution. Firm A faces marginal abatement
cost MACA = 6A and Firm B faces marginal abatement cost MACB = 12A
where A is tons of pollution abatement. The government wishes for
the total amount of pollution to be 80 tons.
1. (2 points) At the cost effective allocation of abatement, how
much does Firm A abate?
2. (2 points) What tax per...

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...

The marginal abatement (control) costs for two air pollutants
sources that affect a single receptor are MAC1 = $0.6
q1 and MAC2 = $1.0q2, where q1 and
q2 are emissions abated. Their respective transfer coefficients are
a1 = 3.0 and a2 = 2.0. Without any control,
they would each emit 20 units of emissions each. The ambient
standard is 24 ppm.
I. If an ambient permit system were established, how many
permits would be issued and what price would prevail?...

Suppose two point sources are discharging phosphorus into
Wisconsin’s Fox River and face the following abatement costs for
this pollutant:
Point Source 1: TAC1 = 500 + 0.35(A1)2 MAC1 = 0.7A1
Point Source 2: TAC2 = 750 + 1.05(A2)2 MAC2 = 2.1A2,
where A1 and A2 represent the abatement of phosphorus effluents
in pounds by Source 1 and Source 2, respectively, and TAC and MAC
are measured in hundreds of dollars.
Assume that the state environmental authority has set the...

There are two polluters in a specific region, each of
whom is currently emitting 100 units of pollution for a total of
200 units of pollution in the region. The government wants to
reduce total pollution by 60 units (i.e., A_ST = 60 ). For
simplicity, ignore enforcement costs. The total and marginal
abatement costs of each polluter are as
follows:
TAC_1 = 0.2A_1^2 → MAC_1 =
0.4A_1
TAC_2 = 0.3A_2^2 → MAC_2 = 0.6A_2
Market Approach: Tradable Pollution Permits...

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,...

Assume there are two polluting firms in two different cities. In
the business-as-usual outcome, Firm #1 would emit 20 units of
pollution (e1=20) and Firm #2 would emit 20 units of
pollution (e2=20).
Additionally, assume the marginal abatement costs for Firm #1
and Firm #2 are given below: MAC1 (x1) =
0.5x1 & MAC2
(x2) = 2x2
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...

Problem 1
What is the difference between cost effectiveness and
efficiency?
Problem 2
Assume that the market demand curve for diamonds is given by the
following equation:
PD = 1000 ? 2 QE,
and the market supply curve, which is equal to the aggregated
marginal cost curve of all producers, is given by,
PS = 200 + 2 QU
Diamond production, however, is associated with harmful side
effects on both workers and nearby households and firms. The total
damage to...

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