Consider the following graph depicting the industry aggregate marginal abatement costs. The government is considering introducing an emission trading scheme where 140 domestic emission permits would be made available and allocated using an ascending uniform price auction. While the domestic auction takes place, international permits are also available at the price of $40 per permit. Firms can purchase international permits. The price of international permits is known to the firms. Choose the correct answers to the questions from the lists of available answers. Marginal Abatement Cost - Industry

Consider the following graph depicting the industry aggregate marginal abatement costs. The government is considering introducing an emission trading scheme where 140 domestic emission permits would be made available and allocated using an ascending uniform price auction. While the domestic auction takes place, international permits are also available at the price of $40 per permit. Firms can purchase international permits. The price of international permits is known to the firms. Choose the correct answers to the questions from the lists of available answers. Marginal Abatement Cost - Industry

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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. Suppose that in order to avoid the costly obtention of disaggregate information about individual firms' costs, the government just implements a uniform standard aui = A* / 2. Is this allocation efficient? If not, what is the deadweight loss?
Consider two firms with the following marginal abatement costs (MAC) as a function of emissions (E): MAC_1 = 12-.5E_1 MAC_2 = 12-E_2, and assume marginal external damages (MED) from the aggregate emissions of both firms (E_Agg = E_1 + E_2) is: MED = (1/3)E_Agg. To achieve the socially efficient level of aggregate emissions (E*_Agg), the government institutes a per unit tax on emissions. The per- unit tax on emissions is $ Answer:
The supply of fertilizer is described by the following equation: Qs= 3,000P where Qs is the supply per year and P is the price of fertilizer per ton. The demand for fertilizer is described by: Qd= 500,000 − 20,000P where Qd is tons of fertilizer demanded per year. The marginal external costs of $30 are associated with the production of each ton of fertilizer due to the pollution related to fertilizer production. explain your answers by showing your work. a) Assuming that fertilizer is sold in a competitive market, what is the market price?
Suppose that engineers have discovered a new production process for this product which results in a significant positive externality. As a result of the positive externality, for every given output level Marginal Social Value (MSV1) is now higher than consumer’s marginal willingness to pay (also known as the Demand Curve shown as D0 below). Keep in mind that the setting is still that of a monopoly. 1) Please indicate on the graph above, assuming an absence of any government intervention to correct the positive externality and adding any necessary curve(s): The monopoly price P1 and the monopoly quantity Q1 under the condition of the (uncorrected) positive externality. (Also indicate, for comparison purposes, the original monopoly price P0 and monopoly quantity Q0.) The Socially Optimal output, QSO1. The resulting Consumer Surplus CS1, the resulting Producer Surplus PS1, and the size of Dead-Weight Loss DWL1 if there is such a loss. (No need to show the economic profits earned by the…
In the market for a certain pesticide, the following equations represent the private demand and supply: Private Demand: QD = 160 - P Private Supply: QS = 4P The use of this pesticide has a negative externality that affects nearby ecosystems, which is not reflected in the market price. The external cost is estimated to be $5 per unit of pesticide. By how much is the pesticide overconsumed under perfect competition? A) 1 units B) 3 units C) 4 units D) 5 units E) none of the above
Suppose there are only two polluting firms, called A and B, with the following marginal abatement costs: 1602AA MACe=− and 100BB MACe=−, where A e represents firm A’s emissions in tons and B e 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.
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Consider two firms with the following marginal abatement costs (MAC) as a function of emissions (E): MAC_1 = 22 - 2E_1 MAC_2 = 10 - E_2, and assume marginal external damages (MED) from the aggregate emissions of both firms (E_Agg = E_1 + E_2) is: MED = .5E_Agg. To achieve the socially efficient level of aggregate emissions (E*_Agg), the government institutes a cap and trade policy and sets the cap equal to the socially efficient level of emissions (E*_Agg). If firm 2 is initially grandfathered 2 permits, it will buy ____ more permits. (Note: your answer can be positive or negative; if it is positive, the firm is buying additional permits; if it is negative, the firm sells permits. So, for example, an answer of -10 implies that the firm sells 10 permits)
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?
2, = 160,000 – 2000P and Qs=40,000+2000P, where Q, is the quantity demanded in 100-pound lots, Q, is the quantity supplied in 100-pound lots, and P is the price per 100-pound lot. Currently there is no attempt to regulate the dumping of effluent into streams and rivers by the paper mills. As a result, dumping is widespread. The marginal external cost (MEC) associated with the production of paper is given by the curve MEC=0.0006Qs- a. Calculate the output and price of paper if it is produced under competitive conditions and no attempt is made to monitor or regulate the dumping of effluent. b. Determine the socially efficient price and output of paper. c. Explain why the answers you calculated in parts a and b differ.
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