PART II: Multipart Problems wood or solem of toilue steder aid 1. Assume that a society has a polluting industry comprising two firms, where the industry-level marginal abatement cost curve is given by: MAC = 24 - (3)E and the marginal damage function is given by: MDF = 2E. a. What is the efficient level of emissions? b. What constant per-unit emissions tax could achieve the efficient emissions level? c. What is the net benefit to society of moving from the unregulated emissions level to the efficient level? In response to industry complaints about the costs of the tax, a cap-and-trade program is proposed. The marginal abatement cost curves for the two firms are given by: MAC₁ = 24-E and MAC2 = 24 - 2E2. d. How could a cap-and-trade program that achieves the same level of emissions as the tax be designed to reduce the costs of regulation to the two firms? 1 e. Given a cap set at the efficient emissions level, how many permits will be held by each firm after trading is completed? f. What will the market price for permits be in this case?
PART II: Multipart Problems wood or solem of toilue steder aid 1. Assume that a society has a polluting industry comprising two firms, where the industry-level marginal abatement cost curve is given by: MAC = 24 - (3)E and the marginal damage function is given by: MDF = 2E. a. What is the efficient level of emissions? b. What constant per-unit emissions tax could achieve the efficient emissions level? c. What is the net benefit to society of moving from the unregulated emissions level to the efficient level? In response to industry complaints about the costs of the tax, a cap-and-trade program is proposed. The marginal abatement cost curves for the two firms are given by: MAC₁ = 24-E and MAC2 = 24 - 2E2. d. How could a cap-and-trade program that achieves the same level of emissions as the tax be designed to reduce the costs of regulation to the two firms? 1 e. Given a cap set at the efficient emissions level, how many permits will be held by each firm after trading is completed? f. What will the market price for permits be in this case?
Chapter17: Market Failure: Externalities, Public Goods, And Asymmetric Information
Section17.3: Environmental Policy
Problem 3ST
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Transcribed Image Text:PART II: Multipart Problems
wood or solem of toilue steder aid
1. Assume that a society has a polluting industry comprising two firms, where the industry-level
marginal abatement cost curve is given by: MAC = 24 - (3)E and the marginal damage
function is given by: MDF = 2E.
a. What is the efficient level of emissions?
b. What constant per-unit emissions tax could achieve the efficient emissions level?
c. What is the net benefit to society of moving from the unregulated emissions level to the
efficient level?
In response to industry complaints about the costs of the tax, a cap-and-trade program is
proposed. The marginal abatement cost curves for the two firms are given by:
MAC₁ = 24-E and MAC2 = 24 - 2E2.
d. How could a cap-and-trade program that achieves the same level of emissions as the tax
be designed to reduce the costs of regulation to the two firms?
1
e. Given a cap set at the efficient emissions level, how many permits will be held by each
firm after trading is completed?
f. What will the market price for permits be in this case?
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