1. Suppose that the Marginal Abatement Cost function and the Marginal Damage function for an industry are given as follows: MAC100-0.8e MD = 0.2e For simplicity here, we are assuming that they are linear. a. Graph the MAC and MD curves for this industry. Make sure you are marking out any and all relevant axis intercepts. b. Suppose that an emission tax is imposed to achieve the efficient outcome, at what value should the government set the tax? Explain. c. At the efficient tax established in part b, what is the expected level of emissions? Explain.
1. Suppose that the Marginal Abatement Cost function and the Marginal Damage function for an industry are given as follows: MAC100-0.8e MD = 0.2e For simplicity here, we are assuming that they are linear. a. Graph the MAC and MD curves for this industry. Make sure you are marking out any and all relevant axis intercepts. b. Suppose that an emission tax is imposed to achieve the efficient outcome, at what value should the government set the tax? Explain. c. At the efficient tax established in part b, what is the expected level of emissions? Explain.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Marginal Abatement Cost function and the Marginal Damage function for an
industry are given as follows:
MAC = 100 – 0.8e
MD = 0.2e
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