he marginal benefit of being able to emit a ton of sulfur dioxide emissions for two firms are given by: MBX = 1000 – ( Ex / 2 ) MBY = 600 – ( Ey / 3 ) Note that these marginal benefit figures can be interpreted as marginal cost of abating emission down to levels Ex and Ey. Government regulators want to reduce total sulfur dioxide emissions to a total of 1800 tons. a) If the government imposes the same standard of 900 tons maximum emissions on both firms what would be the total cost of abatement (calculated as the aggregated marginal benefits forgone)? b) If the government distributed 900 tradable pollution permits (one ton each) to each firm what would be the final allocation of these permits after the firms trade them? c) What would be the total cost of abatement in this latter case?
The marginal benefit of being able to emit a ton of sulfur dioxide emissions for two firms are given by:
MBX = 1000 – ( Ex / 2 )
MBY = 600 – ( Ey / 3 )
Note that these marginal benefit figures can be interpreted as marginal cost of abating emission down to levels Ex and Ey.
Government regulators want to reduce total sulfur dioxide emissions to a total of 1800 tons.
a) If the government imposes the same standard of 900 tons maximum emissions on both firms what would be the total cost of abatement (calculated as the aggregated marginal benefits forgone)?
b) If the government distributed 900 tradable pollution permits (one ton each) to each firm what would be the final allocation of these permits after the firms trade them?
c) What would be the total cost of abatement in this latter case?
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