MBy = 600 – ( Ey / 3 ) Note that these marginal benefit figures can be interpreted as marginal cost of a emission down to levels Ex and Ey. Government regulators want to reduce total sulfur dioxide emissions to a total o tons. a) If the government imposes the same standard of 900 tons maximum emi both firms what would be the total cost of abatement (calculated as the a marginal benefits forgone)? b) If the government distributed 900 tradable pollution permits (one ton ea each firm what would be the final allocation of these permits after the fi them? What would be the total cost of abatement in this latter case?

MBy = 600 – ( Ey / 3 ) Note that these marginal benefit figures can be interpreted as marginal cost of a emission down to levels Ex and Ey. Government regulators want to reduce total sulfur dioxide emissions to a total o tons. a) If the government imposes the same standard of 900 tons maximum emi both firms what would be the total cost of abatement (calculated as the a marginal benefits forgone)? b) If the government distributed 900 tradable pollution permits (one ton ea each firm what would be the final allocation of these permits after the fi them? What would be the total cost of abatement in this latter case?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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$ MAC 69 0 K A. The total benefit of that decision is represented by area(s) B. The total cost of that decision is represented by area(s) M Suppose that emissions were to decrease from the unregulated level to the optimal level. C. The net benefit of that decision is represented by area(s) MD ◆ e ◆
109 83 35 38 T B a V Y D₂ 223 634 1374 Emissions Consider the figure above if the government imposes a cap and trade system with a cap of 925 units of emissions, then what areas reprosent the total cost of abatiment? E 925 W
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No hand written solution Afirm has an industrial plant that emits pollutants into a town’s lake. The plant’s marginal abatement function is MAC= 200 – 0.5E and damages caused by its emissions are given by MD = 2E where emissions are in kg. per day. What is the socially efficient level of emissions from this plant? Illustrate this in a graph. As an incentive to reduce emissions to the socially efficient level, government offers to pay the firm for each kg. of emissions it abates per day from this plant. What subsidy per kg. should the government offer? If the plant abates to the socially efficient level of emissions, what total subsidy payment would the firm receive? Identify the area in your graph. How much better or worse off would the firm be compared to if it did no abating? Identify the area in your graph. What would be the net benefit to society if we pay the firm to reduce the plant’s emissions to the socially efficient level? Identify this area in your graph.
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Suppose there are only two polluting firms, called A and B, with the following marginal abatement costs: 1602AA MACe=− and 100BB MACe=−, where A e represents firm A’s emissions in tons and B e represents firm B’s emissions in tons. Suppose the government wishes to ensure that the two firms together emit 60 tons of the pollutant and uses a Tradable Emission Permit (TEP) policy. Assume that each TEP allows its holder to emit 1 ton, and that the market for permits is perfectly competitive. a. Suppose the government initially distributes the total number of TEPs it issues equally between the two firms. The permits are distributed free of charge. Once trade in permits takes place, what will be the equilibrium in the market for TEPs (i.e. which firm will buy how many TEPs from the other, and at what price)? b. Briefly describe three problems of setting up a TEP market.
The figure above shows a national marketable permit system for carbon dioxide. If marginal abatement costs turn out to be high and the government does supply annual permits, what will be the price of a permit? Permit Price ($/ton) S D2 P2 = 600 P7 = 300 A P, = 150 1 %3D D Quantity of Permits 50 QT 75 Q2 100 (% of uncontrolled emissions) OA. P1 Ов. Р2 OC. PT OD. PO O E. Either P0 or P1. B
[4] At their choice of emissions after trading permits, what is each firm’s total abatement cost? Firm 1’s Total Abatement Cost ___________ Firm 2’s Total Abatement Cost ___________ [5] Alternatively, what could the regulator choose for an emissions tax to achieve the goal of 25 units in a cost-effective manner?