Firms within the country of Anviliania are currently emitting pollutants. These pollutants cause damages within Anviliania. However, the pollutants also cause damages to the properties and health of residents of countries that share borders with Anviliania. The Marginal Abatement Costs of the firms in Anviliania can be represented by the equation MAC(Anvil.) = 750 -2.3 e The Marginal Damage Costs to the residents of Anviliania are given by MDC (Anvil.) =- - 40 + 10 e The Marginal Damage Costs to all residents (including the residents of Anviliania) are MDC (Globe) = -20+ 12 e a. Draw a diagram representing this situation. b. Determine the magnitude of the local market failure and the global market failure. c. Suppose that the Anvilianian government has given production subsidies to the firms in Anviliania. As a result, the firms have increased production (and the number of firms have increased.). Consequently, the aggregate MAC is now MAC' (Anvil.) = 800 - 2.3 e. Determine the magnitude of the intervention failure.

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Firms within the country of Anviliania are currently emitting pollutants. These pollutants
cause damages within Anviliania. However, the pollutants also cause damages to the
properties and health of residents of countries that share borders with Anviliania.
The Marginal Abatement Costs of the firms in Anviliania can be represented by the
equation
MAC(Anvil.) = 750 -2.3 e
The Marginal Damage Costs to the residents of Anviliania are given by
MDC (Anvil.)
=-
- 40 + 10 e
The Marginal Damage Costs to all residents (including the residents of Anviliania) are
MDC (Globe) = -20+ 12 e
a. Draw a diagram representing this situation.
b. Determine the magnitude of the local market failure and the global market failure.
c. Suppose that the Anvilianian government has given production subsidies to the firms in
Anviliania. As a result, the firms have increased production (and the number of firms
have increased.). Consequently, the aggregate MAC is now
MAC' (Anvil.) = 800 - 2.3 e.
Determine the magnitude of the intervention failure.
Transcribed Image Text:Firms within the country of Anviliania are currently emitting pollutants. These pollutants cause damages within Anviliania. However, the pollutants also cause damages to the properties and health of residents of countries that share borders with Anviliania. The Marginal Abatement Costs of the firms in Anviliania can be represented by the equation MAC(Anvil.) = 750 -2.3 e The Marginal Damage Costs to the residents of Anviliania are given by MDC (Anvil.) =- - 40 + 10 e The Marginal Damage Costs to all residents (including the residents of Anviliania) are MDC (Globe) = -20+ 12 e a. Draw a diagram representing this situation. b. Determine the magnitude of the local market failure and the global market failure. c. Suppose that the Anvilianian government has given production subsidies to the firms in Anviliania. As a result, the firms have increased production (and the number of firms have increased.). Consequently, the aggregate MAC is now MAC' (Anvil.) = 800 - 2.3 e. Determine the magnitude of the intervention failure.
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