QUESTION ONETwo firms are ordered by the Government to reduce their pollution levels. Firm A'smarginal costs associated with pollution reduction are MC = 20 + 4Q. Firm B's marginalcosts associated with pollution reduction are MC = 10 + 8Q. The marginal benefit ofpollution reduction is MB = 400-4Q.a) What is the socially optimal level of each firm's pollution reduction?b) Compare the social efficiency of the three possible outcomes:(1) require both firms to reduce pollution by the same amount;(2) charge a common tax per unit of pollution;(10 marks)(3) require both firms to reduce pollution by the same amount but allow pollutionpermits to be bought and sold.(15 marks)[Total = 25 marks]17°C Partly cloudy

To find the socially optimal level of pollution reduction for each firm, we need to equate the…

Answered: QUESTION ONE Two firms are ordered by…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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