1. A firm's marginal abatement cost function is given by MAC = 200-5E. Suppose that, afteradopting new abatement technology, the firms marginal abatement function becomes MAC =160-4E. Costs are in dollars per tonne and emissions are in tonnes per year. The firm is given20 tradeable pollution permits (each permit allows it to emit one tonne of pollution) and thecurrent market price per permit is $100.a)Given no change in the permit price how many tonnes of pollution will the firm emit?b)What will be the firms total abatement cost? Will it buy or sell permits and how many?c) What will be the net cost to the firm after trading? What will be the net gain to the firmfrom adopting the new abatement technology

Marginal abatement cost indicates the cost of reducing negative effects on the society, like pollution. A) To obtain the optimal amount of pollution permitted, equate the marginal abatement cost to the per unit permit price. MAC=160-4e 100=160-4e e=604=15 The MAC is lower than the permit price, so it better for firm sell permit and reduce pollution and get Profit from it. So firm will emit 15 tons of pollution. B) TOTAL ABATEMENT COST=160E-2×E2 =160*40-2*40*40-(160*15-2*15*15) =6400-3200-2400+450 =1250 Firm will sell 5 permit in the market . C)Net cost =total ABATEMENT COST- revenue from selling permit=1250-5×100=1250-500=750 With initial technology, MAC=200-5×20=100 So marginal abatement cost is equal to permit price ,so firm will neither buy or sell permit. TAC=200×e-2.5×e2 TAC=200×40-2.5×40×40 -(200×20-2.5×20×20) =8000-4000-4000+1000 =1000 Net benefit from new technology=1000-750=250

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.A firm's marginal abatement cost function is given by MAC = 200-5E. Suppose that, after dopting new abatement technology, the firms marginal abatement function becomes MAC = 60-4E. Costs are in dollars per tonne and emissions are in tonnes per year. The firm is given O tradeable pollution permits (each permit allows it to emit one tonne of pollution) and the urrent market price per permit is $100. OGiven no change in the permit price how many tonnes of pollution will the firm emit? DWhat will be the firms total abatement cost? Will it buy or sell permits and how many? What will be the net cost to the firm after trading? What will be the net gain to the firm om adopting the new abatement technology

.A firm's marginal abatement cost function is given by MAC = 200-5E. Suppose that, after dopting new abatement technology, the firms marginal abatement function becomes MAC = 60-4E. Costs are in dollars per tonne and emissions are in tonnes per year. The firm is given O tradeable pollution permits (each permit allows it to emit one tonne of pollution) and the urrent market price per permit is $100. OGiven no change in the permit price how many tonnes of pollution will the firm emit? DWhat will be the firms total abatement cost? Will it buy or sell permits and how many? What will be the net cost to the firm after trading? What will be the net gain to the firm om adopting the new abatement technology

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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