Question

A policy has been implemented to control pollution from two firms. The marginal cost of abatement for firm 1 is $5/ton at its choice of emissions. The marginal cost of abatement for firm 2 is $3/ton at its choice of emissions.

What is true about this policy?

This policy is optimal |
||

This policy is inefficient because both firms should increase their abatement |
||

The policy is inefficient because firm 1 should increase its abatement and firm 2 should decrease its abatement |
||

The policy is inefficient because firm 1 should decrease its abatement and firm 2 should increase its abatement |

Answer #1

Answer- **Correct option is 'D'**

**''The policy is inefficient because firm 1 should
decrease its abatement and firm 2 should increase its abatement'',
this statement is True.** Because the direct pollution
control are usually inefficient because by mandating the same
response from all agent but the different marginal cost of
pollution abatement of two firms. If one firm has a lowered
abatement cost than another firm, it pays to reallocate a given
amount of abatement. To minimize the total cost of any given amount
of pollution abatement the lower-cost firm should abate more and
the higher-cost firm less. The general conclusion is that efficient
abatement requires that each firm have the same marginal cost of
the last unit of abatement undertaken.

Two polluting firms can control emissions of a pollutant by
incurring the following marginal abatement costs: MAC1 = $300?1,
and MAC2 = $100?2 where ?1, and ?2 are the amount of emissions
abated (i.e., pollution controlled) by firm 1 and firm 2
respectively. Assume that with no abatement of emissions at all,
firm 1 would release 15 units of pollution and firm 2 would release
10 units, for a total of 25 units. Assume the target level of
abatement is...

Two firms can control emissions at the following marginal
abatement costs. ?? 1= 200?1 and ??.2 = 100?1, where q1 and q2 are,
respectively the amount of emissions abated for firm 1 and firm 2.
Assume that with no control at all each firm would be abating 20
units of emissions or a total of 40 units for both firms. a)
Calculate the marginal cost for abating 20 units of emissions for
each firm. b) Calculate the cost-effective allocation of...

Consider two polluting firms. The marginal cost of abatement
for firm 1 is MC1 =
e1 + 300, and the marginal cost of
abatement for firm 2 is MC2 =
3e2, where e1 and
e2 are the tons of pollution abatement by firms 1
and 2, respectively. Baseline pollution levels are
bl1 = 2000 and
bl2 = 2000.
Suppose the government sets a pollution reduction goal of 1600
total units of abatement.
Write down two equations that ensure that the...

Suppose a control authority is trying to design a cost-effective
pollution control policy. They assume the aggregate marginal
abatement cost is given as MAC = 16 –q and the marginal pollution
damage is given as MD = 3q where q is the total amount of
emissions. Calculate the socially efficient level of emissions. Use
a diagram to explain why the profit-maximising level of emissions
and socially efficient level of emissions are different. Suppose
the control authority tries to achieve the...

marginal abatement cost curves for polluters 1 and 2 :
MAC1=10-e1 and MAC2=8-e1.
* How much does polluter 1 and polluter 2 pollute
without government intervention?
* This level of pollution should be reduced by 50%.
What are the marginal and total abatement costs of polluters 1 and
2 if a command and control policy is applied?
* What is the optimal outcome, or which allocation of
emissions minimize the abatement costs? Please calculate the total
abatement costs for the...

4. Consider an industry with three firms. Firm 1’s marginal cost
of abatement (MCA)=20-2E1, where E is the tons of pollution
emitted. Firm 2’s MCA=10-E2. Firm 3’s MCA=40-2E3. Please draw a
diagram to support your answers to the following questions. If
there is no policy to reduce pollution, how much pollution will be
emitted by each firm? What will be total pollution? If the
government imposes a tax of $10/ton, how much pollution will be
emitted by each firm? What...

Assume the following marginal abatement cost curves for
polluters 1 and 2 : MAC1=10-e1 and
MAC2=8-e1.
1. How much does polluter 1 and polluter 2 pollute without
government intervention?
2. This level of pollution should be reduced by 50%. What are
the marginal and total abatement costs of polluters 1 and 2 if a
command and control policy is applied?
3. What is the optimal outcome, or which allocation of emissions
minimize the abatement costs? Please calculate the total abatement...

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...

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...

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...

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