Assume there are two types of polluting fırms in California and they currently each release 50 units of pollution. Half of the firms have a marginal cost of pollution reduction equal to: MC = 2X (Type 1). The other half have a marginal cost of pollution reduction equal to: MC = 20 (Type 2). *X denotes the quantity of units reduced. If the government implemented a system of tradable permits and gave each firm 25 tradable pollution permits (25 permits allows them to pollute 25 units), what is the optimal allocation of permits to minimize the cost of pollution reduction? O Type 2 would sell 10 permits to Type 1 O Type 2 would sell 5 permits to Type 1 O Type 1 would sell 5 permits to Type 2 O Type 2 would sell 15 permits to Type 1 O Type 1 would sell 10 permits to Type 2 O Type 1 would sell 15 permits to Type 2

Assume there are two types of polluting fırms in California and they currently each release 50 units of pollution. Half of the firms have a marginal cost of pollution reduction equal to: MC = 2X (Type 1). The other half have a marginal cost of pollution reduction equal to: MC = 20 (Type 2). *X denotes the quantity of units reduced. If the government implemented a system of tradable permits and gave each firm 25 tradable pollution permits (25 permits allows them to pollute 25 units), what is the optimal allocation of permits to minimize the cost of pollution reduction? O Type 2 would sell 10 permits to Type 1 O Type 2 would sell 5 permits to Type 1 O Type 1 would sell 5 permits to Type 2 O Type 2 would sell 15 permits to Type 1 O Type 1 would sell 10 permits to Type 2 O Type 1 would sell 15 permits to Type 2

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Firms A and B each produce 80 units of pollution. The federal government wants to reduce pollution levels. The marginal costs associated with pollution reduction are MCA = 50 + 3QA for firm A and MCB = 20 + 6QB for firm B, where QA and QB are the quantities of pollution reduced by each firm. Society's marginal benefit from pollution reduction is given by MB = 590- 3Qtot, where Qtot is the total reduction in pollution. The socially optimal level of firm A's pollution reduction is Hint: Type integers. reduction is The socially optimal level of firm B's pollution
Air pollution creates a negative externality—a cost suffered by a third party as a result of an economic transaction. A standard solution to a negative externality is a Pigouvian tax, a tax that raises the marginal private cost of pollution emissions to the level of the marginal social cost. The socially optimal quantity of pollution emissions is then determined by the intersection of the marginal private benefit, or demand, curve and the marginal social cost curve. The article notes that "putting a dollar value on the benefits of cleaner air has been difficult." Assuming this problem has been resolved, in the accompanying diagram, move the endpoints of line Smarginal social cost to show the marginal social cost curve. Then move the line labeled "Tax" to show the amount of the tax needed to limit emissions to the socially optimal level.
In the film, The Dark Water 2019, Ducont a huge chemical firm dumps it's waste in air, land and water knowing it's has harmful effects to humans and animal. In reference to the firm answer the set of questions below: (a) What is the cause of the externality in the 2019 film The Dark Water? Determine whether the Coase theorem applies in the film, if not, what results in the theorem breaking down?
In 1998, California became the first state to adopt rules requiring many sport utility vehicles, pickups, and minivans to meet the same pollution standards as regular cars, effective in 2004. As the deadline drew near, a business group (which may have an incentive to exaggerate) estimated that using the new technology to reduce pollution would increase vehicle prices by as much as $7,000. A spokesperson for the California Air Resources Board, which imposed the mandate, said that the additional materials cost was only about $70 to $270 per vehicle. Suppose that the two major producers are Toyota and Ford, and these firms were price setters with differentiated products. Show the effect of the new regulation. Is it possible that the price for these vehicles would rise by substantially more than the marginal cost would? Explain your answer.
Consider a market with two polluting firms with linear marginal abatement cost curves. Firm B has increasing marginal abatement costs that are everywhere half as high as Firm A’s marginal abatement costs. The maximum amount of pollution that can be tolerated is less than the total these two firms would emit if their pollution was unrestricted. Thus some aggregate amount of abatement is necessary. The pollutant in question is uniformly mixing, so it doesn’t matter which firm cuts back how much, only that between them, they cut back by the required total amount. The environmental agency decides to solve the abatement allocation problem by giving out pollution permits in amounts such that each firm would be obliged to cut back their emissions by an equal amount. Would this be “fair”? Would it be “efficient”?
Lecture: Externality - Pigou8. All-Leather is a tanning company located on Lake Michigan in Chicago. Its total cost functionis C(QA) = 125 + 8QA + 5QA2, where QA is leather production per week in thousands of pounds.a) If leather sells for $408 per thousand pounds, how much leather will All-Leather produce?How much profit does All-leather earn?Enjoy is a beverage company located on Lake Michigan near All-Leather in Chicago. Enjoy’sproduction of beverages is negatively affected by water pollution from All-Leather’s productionof leather. Enjoy’s total cost function to produce beverages isC(QE) = 10QE +3QE2 + 3QA2where QE is Enjoy’s weekly production of beverages, in thousandsof gallons and, as above, QA is All-Leather’s weekly production of leather.b) Is this an example of a pecuniary externality or a real externality? Explain.c) What is the extra cost to Enjoy from an additional thousand tons of leather production by AllLeather (i.e., the external marginal cost of an extra unit of QA…
See below for three parts of Scenario 2 Scenario 2A. There are three firms, A;B; and C that produce electricity. The first two firms have the same per-megawatt cost of production equal to $2, while firm C has a per-megawatt cost of $1. The firms differ, however, in their pollution. Firms A;B; and C produce respectively 1, 2, and 3 cubic feet of carbon monoxide per megawatt produced. A cubic foot of carbon monoxide pollutes the environment, and has a social cost of $2.5. The demand for electricity is represented by the inverse demand function P (Mw) =100 - Mw, where Mw represents the megawatts consumed by the public. Suppose firms are not held accountable for the pollution they produce. Scenario 2B. Suppose now that the government can measure the amount of pollution issued by each firm, and suppose that the government constrains each firm to emit no more than 9 cubic feet of carbon monoxide. Scenario 2C Suppose that government allows firms to trade their permits to emit carbon…
A steel plant causes about 100 tons of pollution to be released for every 100 tons of steel. Every ton of pollution causes $4 worth of damage to the local town. The MC(Q)=27Q, What is the SMC(Q) for steel? O SMC(Q)=27Q+ 4Q O SMC(Q)=27Q+ 400 O SMC(Q)=27Q+ 4 O SMC(Q)=27Q+ 400Q
Suppose there are only two polluting firms, called A and B, with the following marginal abatement costs: MACA=160 2- e and MACB=100-es, where e represents firm A's emissions in tons and ea represents firm B's emissions in tons. Suppose the government wishes to ensure that the two firms together emit 60 tons of the pollutant and uses a Tradable Emission Permit (TEP) policy. Assume that each TEP allows its holder to emit 1 ton, and that the market for permits is perfectly competitive. a. Suppose the government initially distributes the total number of TEPs it issues equally between the two firms. The permits are distributed free of charge. Once trade in permits takes place, what will be the equilibrium in the market for TEPS (i.e. which firm will buy how many TEPs from the other, and at what price)? b. Briefly describe three problems of setting up a TEP market.
Firms in a polluting industry can be classified in two groups: newer firms with a cleaner technology that can abate pollution at a lower marginal cost MCLA = (1/2)aL and older firms with dirtier MCHA = aH, where ai is the level of abatement undertaken by firms of type i = L, H. The social marginal benefit of abating pollution from this particular industry is MBA= 120 - A, where A is the aggregate level of abatement in that industry. What Pigouvian tax t will implement the efficient allocation (aL, aH)? Is the resulting allocation an efficient allocation? What is the government's tax revenue?
Complete the following Exercises. Use complete sentences. Consider two firms who each release 10 units of pollution initially, for a total of 20 units. Their supply curves for abatement are given below. These supply curves measure the marginal cost of abatement, or the cost of cleaning up each unit of pollution. For example, it costs firm 1 $40 to clean up (or abate) the 1st unit, $80 to clean up the 2nd unit, and so forth. Supply of Abatement UnitFirm 1Firm 2 1$ 40$ 36 2$80$56 3$120$76 4$160$96 5$200$116 6$240$136 7$280$156 8$320$176 9$360$196 10$400 $216 A.) Assume that the damages from the pollution are an external cost from the standpoint of the two firms. How many units will each abate? Why?Why are their marginal costs of abatement (supply curves) rising as they eliminate more pollution (i.e., as they get closer to zero units of pollution)? Now assume the Environmental Protection Agency has determined that the desired…
Two coal-burning electric power plants are emitting mercury which impairs cognitive development in children. Plant A's marginal abatement cost is MCA= 1.2q and plant B's marginal abatement cost is MCB = 0.3q. Each firm initially emits 50 units and the EPA would like to reduce total emissions to 40. If the EPA follows a command-and-control policy and tells each firm to abate by the same amount, what will be the total costs? If firms could trade permits, what would happen to total costs? Why?