Question

Let there be two consumers in an economy. One owns a farm in arid territory and will receive a marginal benefit of carbon abatement of MB = 150 - A. One owns a farm in frigid territory and will receive a marginal COST of carbon abatement of MC = 0.5A (i.e. MB = -0.5A). The marginal cost of abatement is still $50. What would the optimal level of abatement be now?

		A = 0
		A = 66.67
		A = 100
		A = 133.33

Answer 1

Here there are two consumers in an economy.

One owns a farm in arid territory having marginal benefit of carbon abatement of (MB) = 150 - A. Given marginal cost of abatement (MC) = $50.

At optimal level of abatement is MB = MC

=> 150 – A = 50

=> A = 150 – 50

=> A = 100.

The other farm is in frigid territory having a marginal cost of carbon abatement of MC = 0.5A. Given marginal cost of abatement is (MC) =$50.

Therefore if A = 100 then MC = 0.5 (100) = 50.

So the optimal level of abatement be now is 100.