The marginal benefit of being able to emit a ton of sulphur dioxide emissions for two firms are given by: MBX = 320 – ( Ex / 3 ) MBY = 500 – ( Ey / 2 ) Note that these marginal benefit figures can be interpreted as marginal cost of abating emission down to levels Ex and Ey. Government regulators want to reduce total sulfur dioxide emissions to a total of 1200 tons. a) If the government imposes the same standard of 600 tons maximum emissions on both firms what would be the total cost of abatement (calculated as the aggregated marginal benefits forgone)? b) If the government distributed 600 tradable pollution permits to each firm what would be the final allocation of these permits after the firms trade them? What would be the total cost of abatement in this latter case?
The marginal benefit of being able to emit a ton of sulphur dioxide emissions for two
firms are given by:
MBX = 320 – ( Ex / 3 )
MBY = 500 – ( Ey / 2 )
Note that these marginal benefit figures can be interpreted as marginal cost of abating
emission down to levels Ex and Ey.
Government regulators want to reduce total sulfur dioxide emissions to a total of 1200
tons.
a) If the government imposes the same standard of 600 tons maximum emissions on
both firms what would be the total cost of abatement (calculated as the aggregated
marginal benefits forgone)?
b) If the government distributed 600 tradable pollution permits to each firm what
would be the final allocation of these permits after the firms trade them? What
would be the total cost of abatement in this latter case?
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