Three firms in a single industry are the only source, in a given airshed, of emissions ofa uniformly mixed pollutant, say, CO₂. Their emissions levels are currently е₁=300,100, where the subscript denotes firms. The environmental regulatorhas decided that emissions should be reduced by half, to E=300. The firms' abatementcost functions are given by C₁ (a₁) = 0.1a, C₂(a₂) = 0.2a², and C3 (a3) = 0.3a²respectively. (It is assumed that these functions describe the firms' entire cost structure,including the cost of producing the optimal level of output given e;.) Enforcement costsare zero and there is no uncertainty.1 Suppose the regulator decide to employ a Command-and-Control scheme, requiringthat each firm reduce its emissions in proportion to ej. Calculate the aggregate costof abatement and each firm's emissions level.2 Now suppose the regulator imposes a Pigouvian tax on each unit of emissions.Calculate the tax required to obtain aggregate emissions of E=300. Calculate eachfirm's emissions level and the total tax collected. Compare total abatement cost to theresult from the question 1.e₂= 200, and e3=

Pigovian Tax is imposed on actions that cause costs or negative externalities for society. The tax…

1 Suppose the regulator decide to employ a Command-and-Control scheme, requiring that each firm reduce its emissions in proportion to e. Calculate the aggregate cost of abatement and each firm's emissions level. 2 Now suppose the regulator imposes a Pigouvian tax on each unit of emissions. Calculate the tax required to obtain aggregate emissions of E=300. Calculate each firm's emissions level and the total tax collected. Compare total abatement cost to the result from the question 1.

1 Suppose the regulator decide to employ a Command-and-Control scheme, requiring that each firm reduce its emissions in proportion to e. Calculate the aggregate cost of abatement and each firm's emissions level. 2 Now suppose the regulator imposes a Pigouvian tax on each unit of emissions. Calculate the tax required to obtain aggregate emissions of E=300. Calculate each firm's emissions level and the total tax collected. Compare total abatement cost to the result from the question 1.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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