Suppose that two firms emit a certain pollutant. The marginal cost of reducing pollution for each firm is as follows: MC1=350e1 and MC2=150e2, where ej and e2 are the amounts (in tons) of emission reduced by the first and second firm respectively. Assume that in the absence of government intervention Firm 1 generates 100 units of emissions and Firm 2 generates 80 units of emissions. a. Suppose regulators decide to reduce the total pollution by 50 units. In order to be cost efficient, how much should each firm cut its emission? a. What emission fee should be imposed to achieve the cost-efficient outcome? How much each firm pay in taxes? a. Suppose that instead of an emission fee, the regulatory agency introduces a tradable permit system and issues 130 permits each of which allows an emission of one unit of pollution and distributes these equally among the firms (i.e., 65 each). How many permits are traded among two firms (i.e, which firms sells and how many). What is the minimum amount of money must be paid (in total) for

Suppose that two firms emit a certain pollutant. The marginal cost of reducing pollution for each firm is as follows: MC1=350e1 and MC2=150e2, where ej and e2 are the amounts (in tons) of emission reduced by the first and second firm respectively. Assume that in the absence of government intervention Firm 1 generates 100 units of emissions and Firm 2 generates 80 units of emissions. a. Suppose regulators decide to reduce the total pollution by 50 units. In order to be cost efficient, how much should each firm cut its emission? a. What emission fee should be imposed to achieve the cost-efficient outcome? How much each firm pay in taxes? a. Suppose that instead of an emission fee, the regulatory agency introduces a tradable permit system and issues 130 permits each of which allows an emission of one unit of pollution and distributes these equally among the firms (i.e., 65 each). How many permits are traded among two firms (i.e, which firms sells and how many). What is the minimum amount of money must be paid (in total) for

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

! (asap) all parts

Suppose that two firms emit a certain
pollutant. The marginal cost of reducing
pollution for each firm is as follows:
MC1=350e1 and MC2=150e2, where ej and
e2 are the amounts (in tons) of emission
reduced by the first and second firm
respectively. Assume that in the absence of
government intervention Firm 1 generates
100 units of emissions and Firm 2 generates
80 units of emissions.
a. Suppose regulators decide to reduce the total
pollution by 50 units. In order to be cost
efficient, how much should each firm cut its
emission?
a. What emission fee should be imposed to
achieve the cost-efficient outcome? How
much each firm pay in taxes?
a. Suppose that instead of an emission fee, the
regulatory agency introduces a tradable
permit system and issues 130 permits each of
which allows an emission of one unit of
pollution and distributes these equally among
the firms (i.e., 65 each). How many permits are
traded among two firms (i.e, which firms sells
and how many). What is the minimum
amount of money must be paid (in total) for
these permits? By how many units each firm
ends up reducing its pollution.

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