6. Consider an industry with three firms. Firm 1's marginal cost of abatement (MCA)=10-E₁, where E is the tons of pollution emitted. Firm 2's MCA-30-2E₂. Firm 3's MCA=30-E3. Please draw a diagram to support your answers to the following questions. a. If there is no policy to reduce pollution, how much pollution will be emitted by each firm? What will be total pollution? Hint: if there is no policy to reduce pollution, the price to pollute is zero. b. If the government imposes a tax of $10/ton, how much pollution will be emitted by each firm? How much pollution will be emitted in total? c. What will be the total cost of abatement? d. If the government imposes a limit on pollution, where the limit is the total amount of pollution you found in part b, and each firm is allowed to pollute an equal amount (i.e., each firm will be allowed to emit one third of the total amount allowed), what will be the total cost of abatement? Which policy is more efficient, the tax or the limit on pollution? Explain. e.

6. Consider an industry with three firms. Firm 1's marginal cost of abatement (MCA)=10-E₁, where E is the tons of pollution emitted. Firm 2's MCA-30-2E₂. Firm 3's MCA=30-E3. Please draw a diagram to support your answers to the following questions. a. If there is no policy to reduce pollution, how much pollution will be emitted by each firm? What will be total pollution? Hint: if there is no policy to reduce pollution, the price to pollute is zero. b. If the government imposes a tax of $10/ton, how much pollution will be emitted by each firm? How much pollution will be emitted in total? c. What will be the total cost of abatement? d. If the government imposes a limit on pollution, where the limit is the total amount of pollution you found in part b, and each firm is allowed to pollute an equal amount (i.e., each firm will be allowed to emit one third of the total amount allowed), what will be the total cost of abatement? Which policy is more efficient, the tax or the limit on pollution? Explain. e.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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#8. If government regulation forces firms in an industry to internalize the externality, then we can expect the equilibrium price of the good to ________ and the equilibrium quantity to ________. a. increase; increase b. increase; decrease c. decrease; decrease d. decrease; increase e. increase; remain unchanged
Suppose the government wants to reduce the total pollution emitted by three local firms. Currently, each firm is creating 4 units of pollution in the area, for a total of 12 pollution units. If the government wants to reduce total pollution in the area to 6 units, it can choose between the following two methods: Available Methods to Reduce Pollution 1. The government sets pollution standards using regulation. 2. The government allocates tradable pollution permits. Each firm faces different costs, so reducing pollution is more difficult for some firms than others. The following table shows the cost each firm faces to eliminate each unit of pollution. For each firm, assume that the cost of reducing pollution to zero (that is, eliminating all 4 units of pollution) is prohibitively expensive. Firm Cost of Eliminating the... First Unit of Pollution Second Unit of Pollution Third Unit of Pollution (Dollars) (Dollars) (Dollars) Firm X 130 165 220…
Please note that the red line is marginal cleanup cost
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