**Educational Text on Cap-and-Trade Policy with Pulp and Paper Mills****Context:**Suppose there are pulp and paper mills that release carbon dioxide emissions (CO₂) into the air at their current production levels. Each firm currently emits 10 tons per year, thus emitting 20 tons total. Local authorities have decided they would like to reduce annual CO₂ pollution to 10 tons per year (thus a 10-ton reduction) via a cap-and-trade policy.**Marginal Abatement Costs:**The mills have different marginal abatement costs given by the following equations:- $ MAC_X = 3a_X $- $ MAC_Y = a_Y $where $ a_X $ and $ a_Y $ correspond to the marginal abatement quantities chosen by firms X and Y respectively.**Tasks:**(a) **Plotting Marginal Abatement Functions:**Plot the marginal abatement functions for each firm on one overlapping graph that represents all the possible combinations of achieving a 10-unit total abatement.(b) **Trading Permits:**If the regulators issue each firm 5 permits, what is the least firm Y would accept to sell one permit? What is the most firm X would be willing to pay to buy one permit? Given this information, do you expect firms would trade?(c) **Permit Purchases:**If the regulators issue each firm 5 permits, how many permits would X buy from Y? How do you know? *Note: it is possible to purchase fractions of permits, so they need not be in whole numbers.*(d) **Impact of Lobbying:**Suppose firm X has really good lobbyists and convinces the regulator to give all 10 permits to firm X and zero to firm Y. Would the firms still trade? After trading, how many permits would each firm have? How do you know? How does this compare to the outcome in part (c)?

Marginal Abatement Cost of Firm X = 3ax Marginal Abatement Cost of Firm Y = ay

Suppose there are pulp and paper mills that release carbon dioxide emissions (CO₂) into air at their current production levels. Each firm currently emits 10 tons per year, thus emitting 20 tons total. Local authorities have decided they would like to reduce annual CO₂ pollution to 10 tons per year (thus a 10 ton reduction) via a cap-and-trade policy. The mills have different marginal abatement costs given by the following equations: MACX 3ax MACY = ay whereby ax and ay correspond to the marginal abatement quantities chosen by firms X and Y respectively. (a) Plot the marginal abatement functions for each firm on one overlapping graph that rep-

Suppose there are pulp and paper mills that release carbon dioxide emissions (CO₂) into air at their current production levels. Each firm currently emits 10 tons per year, thus emitting 20 tons total. Local authorities have decided they would like to reduce annual CO₂ pollution to 10 tons per year (thus a 10 ton reduction) via a cap-and-trade policy. The mills have different marginal abatement costs given by the following equations: MACX 3ax MACY = ay whereby ax and ay correspond to the marginal abatement quantities chosen by firms X and Y respectively. (a) Plot the marginal abatement functions for each firm on one overlapping graph that rep-

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A university spent $1.5 million to install solar panels atop a parking garage. These panels will have a capacity of 200 kilowatts (kW) and have a life expectancy of 20 years. Suppose that the discount rate is 10%, that electricity can be purchased at $0.30 per kilowatt-hour (kWh), and that the marginal cost of electricity production using the solar panels is zero. Hint: It may be easier to think of the present value of operating the solar panels for 1 hour per year first. Approximately how many hours per year will the solar panels need to operate to enable this project to break even? 1,468.26 2,936.51 3,230.16 4,111.11 If the solar panels can operate only for 2,643 hours a year at maximum, the project Continue to assume that the solar panels can operate only for 2,643 hours a year at maximum. break even. In order for the project to be worthwhile (1.e., at least break even), the university would need a grant of at least,
“ The Third Wave in coffee refers to the growth of small, independent coffee roasters who developed as an alternative to Starbucks when that company grew and disaffected coffee drinkers looked for alternative sources for their caffeinated drinks." “.companies of this type provide a relatively small clientele with great tasting coffees and verified attributes in the sourcing of coffee beans- organic, shade-grown, bird friendly, direct trade (it's better than fair trade), single-farm sourced, etc". "For a Third Wave coffee company, the goal is to satisfy existing consumer interest or create new consumer interest in attributes that its customers believe only that company can offer." “..firms are always trying to create new and better differentiation to set themselves apart from those who have been successfully earning monopoly profits. This very phenomenon is seen as Third Wave coffee companies differentiated their brands from Starbucks as it grew beyond its original ethos as a brand." a.…
Consider a market with two polluting firms with linear marginal abatement cost curves. Firm B has increasing marginal abatement costs that are everywhere half as high as Firm A’s marginal abatement costs. The maximum amount of pollution that can be tolerated is less than the total these two firms would emit if their pollution was unrestricted. Thus some aggregate amount of abatement is necessary. The pollutant in question is uniformly mixing, so it doesn’t matter which firm cuts back how much, only that between them, they cut back by the required total amount. The environmental agency decides to solve the abatement allocation problem by giving out pollution permits in amounts such that each firm would be obliged to cut back their emissions by an equal amount. Would this be “fair”? Would it be “efficient”?
Problem 11. Maximization of a scarce resources. Marawi Corporation has 52,000 available machine hours and has a fixed overhead rate of P4 per hour. It is considering to produce two popular products with the following production and costs data: Costs if purchased from outside supplier Direct materials Direct labor Factory overhead at P9 per hour Annual demand in units Dragon Ball P 70 11 25 18 20,000 Samurai X P 105 Required: 1. Assuming that there is no market limitation, which product should Marawi Corporation produce? 2. Considering the market limits, how would Marawi Corporation use its limited machine hours to maximize profit? 3. Assuming that the unit direct materials cost of Samurai X decreases to P10 and considering the market limit, how would the limited machine hours be used to maximize profit? 22 38 27 15,000
A university spent $1.6 million to install solar panels atop a parking garage. These panels will have a capacity of 700 kilowatts (kW) and have a life expectancy of 20 years. Suppose that the discount rate is 20%, that electricity can be purchased at $0.30 per kilowatt-hour (kWh), and that the marginal cost of electricity production using the solar panels is zero. Hint: It may be easier to think of the present value of operating the solar panels for 1 hour per year first. Approximately how many hours per year will the solar panels need to operate to enable this project to break even? 1,564.62 2,503.39 625.85 If the solar panels can operate only for 1,408 hours a year at maximum, the projectwould break even. Continue to assume that the solar panels can operate only for 1,408 hours a year at maximum. In order for the project to be worthwhile (i.e., at least break even), the university would need a grant of at least
Pre-mixed concrete is an important input for the construction industry. Concrete cannot be stored or transported over long distances as it begins to set after only a few hours. For this reason, only the three local firms—Aggregate Inc., Big Industries and ConCorp—are in a position to compete in the market. Moreover, the capital and regulatory requirements for constructing a new concrete plant are substantial, creating an effective barrier to entry. Pre-mixed concrete is regarded as a homogeneous good by the construction industry. Inverse demand in the market has been estimated to be,P = 670 − Q/40,where P represents the price of a cubic metre of concrete in dollars, and Q is the total number of cubic metres of concrete supplied into the market on a given day. At present the three firms appear have identical production costs, with each firm facing fixed costs of $400,000 per day and a marginal cost of $190 per cubic metre. Big Industries and ConCorp estimate that the proposed merger…
Two power plants operate in the same town. Each plant currently emits 7 tons of emissions per year or 14 tons per year total. The town wishes to reduce emissions to 10 tons per year overall to achieve an abatement target of 4 tons per year. Power plant 1 has marginal abatement costs given by: MC₁ = 12-2A1, Power plant 2 has marginal abatement costs given by: MC2 = 10-A2. Suppose the government wished to cost-effectively achieve the abatement target using a Pigouvian Tax. What tax should the government set to do so? Assume the marginal benefits of abatement are zero.
Gozilla Inc. can generate 100 (CO2) emissions without any regulation. The marginal control cost for Gozilla Inc., associated with emission reduction, is known MC=20+0.5Q where Q is reduced units. Suppose that the regulator impose an emission standard on Gozilla: According to the emission standard, the factory is allowed to emit 40 units. The level of reduction in the emission standard could be accomplished through an emission charge (quantity tax or penalty fee on emission). An emission charge of per emission unit would generate the target amount of reduction. Total (tax) revenue the regulator will collect as emission charges would be Hint: Type integers. Do not use thousands separators.
Pre-mixed concrete is an important input for the construction industry. Concrete cannot be stored or transported over long distances as it begins to set after only a few hours. For this reason, only the three local firms—Aggregate Inc., Big Industries and ConCorp—are in a position to compete in the market. Moreover, the capital and regulatory requirements for constructing a new concrete plant are substantial, creating an effective barrier to entry. Pre-mixed concrete is regarded as a homogeneous good by the construction industry. Inverse demand in the market has been estimated to be,P = 670 − Q/40,where P represents the price of a cubic metre of concrete in dollars, and Q is the total number of cubic metres of concrete supplied into the market on a given day. At present the three firms appear have identical production costs, with each firm facing fixed costs of $400,000 per day and a marginal cost of $190 per cubic metre. Big Industries and ConCorp estimate that the proposed merger…
1) Calculate the extra profit (or cost savings) the firm receives from participating in the permit market given their initial allocation of permits (7) and the market price of $1. Show your work. 2) Shade the area on the graph that represents your numerical answer from the previous question. МАС 10 7 6 2 1 2 3 4 5 6 7 8 9 10 Abatement
Pre-mixed concrete is an important input for the construction industry. Concrete cannot be stored or transported over long distances as it begins to set after only a few hours. For this reason, only the three local firms—Aggregate Inc., Big Industries and ConCorp—are in a position to compete in the market. Moreover, the capital and regulatory requirements for constructing a new concrete plant are substantial, creating an effective barrier to entry. Pre-mixed concrete is regarded as a homogeneous good by the construction industry. Inverse demand in the market has been estimated to be,P = 670 − Q/40,where P represents the price of a cubic metre of concrete in dollars, and Q is the total number of cubic metres of concrete supplied into the market on a given day. At present the three firms appear have identical production costs, with each firm facing fixed costs of $400,000 per day and a marginal cost of $190 per cubic metre. Big Industries and ConCorp estimate that the proposed merger…