4. Suppose there are two firms in the world with marginal costs of abatement given by: MC^ = X MC" = 3X Each firm is emitting 3 tons of CO2 initially, for a total of 6 tons. Suppose the marginal benefit curve is vertical (a threshold effect) at X = 4. This implies X*=4. a) Suppose the government decides that the firms should split the burden, so each one will do 2 units of abatement. What is the total cost to firm A, firm B, and the two together? b) Apply the equimarginal principle. What is the cheapest way to reach X* (i.e. how much abatement do A and B do)?
4. Suppose there are two firms in the world with marginal costs of abatement given by: MC^ = X MC" = 3X Each firm is emitting 3 tons of CO2 initially, for a total of 6 tons. Suppose the marginal benefit curve is vertical (a threshold effect) at X = 4. This implies X*=4. a) Suppose the government decides that the firms should split the burden, so each one will do 2 units of abatement. What is the total cost to firm A, firm B, and the two together? b) Apply the equimarginal principle. What is the cheapest way to reach X* (i.e. how much abatement do A and B do)?
Chapter13: General Equilibrium And Welfare
Section: Chapter Questions
Problem 13.2P
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![Suppose there are two firms in the world with marginal costs of abatement given by:
MC^ = X
4.
MC® = 3X
Each firm is emitting 3 tons of CO2 initially, for a total of 6 tons.
Suppose the marginal benefit curve is vertical (a threshold effect) at X = 4. This implies X*=4.
a)
Suppose the government decides that the firms should split the burden, so each one
will do 2 units of abatement. What is the total cost to firm A, firm B, and the two together?
b)
Apply the equimarginal principle.
What is the cheapest way to reach X* (i.e. how much abatement do A and B do)?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fec53f15f-14e6-436c-9ea0-c3dc81082bf9%2F7c7eaaa2-89d5-417e-893b-fc9378fec5aa%2Fxbtr6no_processed.png&w=3840&q=75)
Transcribed Image Text:Suppose there are two firms in the world with marginal costs of abatement given by:
MC^ = X
4.
MC® = 3X
Each firm is emitting 3 tons of CO2 initially, for a total of 6 tons.
Suppose the marginal benefit curve is vertical (a threshold effect) at X = 4. This implies X*=4.
a)
Suppose the government decides that the firms should split the burden, so each one
will do 2 units of abatement. What is the total cost to firm A, firm B, and the two together?
b)
Apply the equimarginal principle.
What is the cheapest way to reach X* (i.e. how much abatement do A and B do)?
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