Question

The Reno City Council has passed a law requiring litter to be reduced by 108 pounds per day. The city can reduce litter near UNR campus (C), near downtown Reno (D), or both. The marginal abatement cost for campus is

MAC_C=0.05A_C and the total abatement cost equation is TAC_C=0.025A_C^2 . The marginal abatement cost for downtown is MAC_D=0.13A_D and the total abatement cost equation is TAC_D=0.065A_D^2. Is the uniform policy of equal reduction cost-effective? Justify your answer.

Answer 1

Answer:

Marginal Abatement Cost (MAC) is different for both places, i.e For UNR campus MAC_C=0.05A_C and for downtown MAC_D=0.13A_D. So, the uniform policy of equal cost reduction is not cost effective. It is effective only when MAC is equal for both places. In that case both places will have to incurr equal marginal cost for abatement and by equal abatement cost remains effective.

With different MAC one place (here UNR campus) will have to bear low costs for abatement whereas downtown will have to bear higher costs. Still if they are required to reduce equal amount of litter then it would not be cost effective. It would be cost effective if place with lower MAC is required to reduce more of litter.