Consider two firms with the following marginal abatement costs (MAC) as a function of emissions (E): MAC 110.5E_1 MAC 2=30E_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 per-unit tax on emissions. In principle, firms could continue to emit pollution as they were in the absence of government intervention, but by cutting back on emissions, their total compliance costs (tax payment plus total abatement costs) goes down. How much money can firms save if they reduce their emissions to E_Agg in response to the tax? Answer:

Consider two firms with the following marginal abatement costs (MAC) as a function of emissions (E): MAC 110.5E_1 MAC 2=30E_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 per-unit tax on emissions. In principle, firms could continue to emit pollution as they were in the absence of government intervention, but by cutting back on emissions, their total compliance costs (tax payment plus total abatement costs) goes down. How much money can firms save if they reduce their emissions to E_Agg in response to the tax? Answer:

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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This is an end-of-chapter problem that I'm struggling with! thanks!
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