Question

Emissions (tons/month)	Marginal Abatement Cost	Total Abatement Cost	Total Subsidy at $150/ton	Total tax bill at $150/ton	Total Costs
10	0	0
9	15	15
8	30	45
7	50	95
6	70	165
5	95	260
4	120	380
3	150	530
2	185	715
1	230	945
0	290	1,235

50. What optimal level of emissions would the above firm choose given the subsidy level detailed above?

51. If the above firm emits the optimal level of emissions given an emissions charge, what is the firm’s total cost (TC)?

52. If a regulatory agency simply mandated the optimal level of emissions and there were no emission charges, what would the firm’s total abatement costs (TAC) be?

Answer 1

50)

Firm will abate the emission level as long as Marginal abatement cost is lower than or equal to subsidy rate to maximize the gain.

In this case, MAC is equal to subsidy at 3 units of pollution i.e. 7th unit of abatement. So, optimal level of emission will be equal to 3 units in case of subsidy.

51)

Firm will abate the emission level as long as Marginal abatement cost is lower than or equal to emission charge to minimize cost.

In this case, MAC is equal to emission charge at 3 units of pollution i.e. 7th unit of abatement. So, firm will emit 3 units of emissions and abate 7 units of emissions.

Total Cost=TAC+Tax=530+3*150=$980

52)

If there are no emission charges, Refer to above table to get the TAC for abating 7 units.

TAC=$530