Suppose MAC functions for two firms, Firm 1 and Firm 2, are MAC₁= 60-2E and MAC₂-48-3E2 respectively. (i) Suggest the (socially) cost-effective way to set emission standards for the two firms to reduce their combined level of emissions to 20 units. [Note that we want only 20 units of emissions from the two firms at the end.] (ii) What is the sum of the abatement costs (or total social compliance costs) when emissions are reduced from the two firms to 20 units in the socially cost-effective manner by using emission standards. [This is related to part (i).] (iii) What emission tax rate applied simulataneously to the two firms reduces the combined level of emissions to 20 units from the two firms just as the cost-effective way to set standards? [This question needs to answered based on your answer(s) to part (ii).]

Suppose MAC functions for two firms, Firm 1 and Firm 2, are MAC₁= 60-2E and MAC₂-48-3E2 respectively. (i) Suggest the (socially) cost-effective way to set emission standards for the two firms to reduce their combined level of emissions to 20 units. [Note that we want only 20 units of emissions from the two firms at the end.] (ii) What is the sum of the abatement costs (or total social compliance costs) when emissions are reduced from the two firms to 20 units in the socially cost-effective manner by using emission standards. [This is related to part (i).] (iii) What emission tax rate applied simulataneously to the two firms reduces the combined level of emissions to 20 units from the two firms just as the cost-effective way to set standards? [This question needs to answered based on your answer(s) to part (ii).]

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Suppose MAC functions for two firms, Firm 1 and Firm 2, are MAC₁= 60-2E₁and MAC₂-48-3E2
respectively.
(i) Suggest the (socially) cost-effective way to set emission standards for the two firms to reduce their
combined level of emissions to 20 units. [Note that we want only 20 units of emissions from the two firms at
the end.]
(ii) What is the sum of the abatement costs (or total social compliance costs) when emissions are reduced from
the two firms to 20 units in the socially cost-effective manner by using emission standards. [This is related to
part (i).]
(iii) What emission tax rate applied simulataneously to the two firms reduces the combined level of emissions
to 20 units from the two firms just as the cost-effective way to set standards? [This question needs to
answered based on your answer(s) to part (ii).]

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