Consider the following information: Firm A: MC₂ = 4/3ea Firm B: MCb = 4eb Under the current command and control approach, both firms can pollute 55 units of emissions. If the regulator wants to introduce an ETS to reduce emissions by 30 units. Determine the following. a) Firm A will abate units. b) Firm B will abate c) The price of the permits would be $ d) If all permits were given to Firm B, Firm B would choose to a total amount of $ units. (buy/sell) permits for

Consider the following information: Firm A: MC₂ = 4/3ea Firm B: MCb = 4eb Under the current command and control approach, both firms can pollute 55 units of emissions. If the regulator wants to introduce an ETS to reduce emissions by 30 units. Determine the following. a) Firm A will abate units. b) Firm B will abate c) The price of the permits would be $ d) If all permits were given to Firm B, Firm B would choose to a total amount of $ units. (buy/sell) permits for

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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C Consider two polluting firms with the following marginal savings functions; MS, = 20 - e, for firm 1 MS2 = 40 – 2e, for firm 2 Where e and ez are emission levels for firm 1 and 2, respectively. a. Sketch the MS functions on a diagram. b. Derive the total MS function. Draw it on your diagram above. c. The regulator would like to reduce the level of total emissions by 60% from their unregulated level. What is the total reduction in emissions needed? i. If the regulator decides emissions be cut using equiproportionate reduction, how much is each firm required to reduce? Explain whether this would be a cost-effective way to reduce emissions?
The Swedish Environmental Protection Agency investigates how emissions of an environmentally hazardous substance from an industrial sector should be regulated, either through a tax on the emissions or through a quantitative regulation (limit value). As this is a new substance (new substance), knowledge of the level of environmental damage and the costs of reducing emissions is uncertain. In more technical terms: the regulatory authorities do not have complete information on the positions on either the dD / dM curve (marginal damages) or the MAC curve (marginal abatement costs). a) Explain and show graphically whether - and if so how - the uncertainty about the position of the MAC curve affects the choice between regulating emissions with a tax or limit value from a socio-economic efficiency perspective. b) Explain and show graphically whether - and if so how - the uncertainty about the position of the dD / dM curve affects the choice between regulating emissions with a tax or limit…
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See attached image for marginal abatement cost table and question
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