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 M CLA L = (1/2) aL and older firms with dirtier M CAH = 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:1. 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. Suppose that in order to avoid the costly obtention of disaggregate information about individual firms cost, the government just implements a uniform standard aui = A*/2. Is this allocation efficient? If not, what is the deadweight loss? 3. Suppose instead that the government uniformly allocates tradable emission’s permits. What abatement allocation will prevail after the permits are traded among firms? Is this allocation efficient? (b) What Pigouvian tax t will implement the efficient allocation (a, , a4)?Is the resulting allocation an efficient allocation? What is the gov-ernment's tax revenue?*(c) Suppose that in order to avoid the costly obtention of disaggregateinformation about individual firms' costs, the government just im-plements a uniform standard a = A* /2. Is this allocation efficient?If not, what is the deadweight loss?(d) Suppose instead that the government uniformly allocates tradableemission's permits. What abatement allocation will prevail after thepermits are traded among firms? Is this allocation efficient? Firms in a polluting industry can be classified in two groups: newer firmswith a cleaner technology that can abate pollution at a lower marginalcost MCka; is the level of abatement undertaken by firms of type isocial marginal benefit of abating pollution from this particular industryis MBA(1/2)aL and older firms with dirtier MCHан, whereL, H. The120 – A, where A is the aggregate level of abatement in thatindustry.

Deadweight loss is a fundamental concept in economics, indicating the reduction in overall social…

Answered: Firms in a polluting industry can be…

ENGR.ECONOMIC ANALYSIS

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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 M CLA L = (1/2) aL and older firms with dirtier M CAH = 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:

1. 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. Suppose that in order to avoid the costly obtention of disaggregate information about individual firms cost, the government just implements a uniform standard aui = A*/2. Is this allocation efficient? If not, what is the deadweight loss?

3. Suppose instead that the government uniformly allocates tradable emission’s permits. What abatement allocation will prevail after the permits are traded among firms? Is this allocation efficient?

(b) What Pigouvian tax t will implement the efficient allocation (a, , a4)?
Is the resulting allocation an efficient allocation? What is the gov-
ernment's tax revenue?
*
(c) Suppose that in order to avoid the costly obtention of disaggregate
information about individual firms' costs, the government just im-
plements a uniform standard a = A* /2. Is this allocation efficient?
If not, what is the deadweight loss?
(d) Suppose instead that the government uniformly allocates tradable
emission's permits. What abatement allocation will prevail after the
permits are traded among firms? Is this allocation efficient?

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 MCk
a; is the level of abatement undertaken by firms of type i
social marginal benefit of abating pollution from this particular industry
is MBA
(1/2)aL and older firms with dirtier MCH
ан, where
L, H. The
120 – A, where A is the aggregate level of abatement in that
industry.

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