There are three firms, A;B; and C that produce electricity. The first two firms have the same per-megawatt cost of production equal to $2, while firm C has a per-megawatt cost of $1. The firms differ, however, in their pollution. Firms A, B, and C produce respectively 1, 2, and 3 cubic feet of carbon monoxide per megawatt produced. A cubic foot of carbon monoxide pollutes the environment, and has a social cost of $2.5. The demand for electricity is represented by the inverse demand function P (Mw) =100 - Mw, where Mw represents the megawatts consumed by the public. Suppose firms are not held accountable for the pollution they produce. Suppose that government allows firms to trade their permits to emit carbon monoxide. Q1: What is the competitive price of a permit to emit 1 cubic foot of carbon monoxide? And how much electricity is produced after the permits are traded?
There are three firms, A;B; and C that produce electricity. The first two firms have the same per-megawatt cost of production equal to $2, while firm C has a per-megawatt cost of $1. The firms differ, however, in their pollution. Firms A, B, and C produce respectively 1, 2, and 3 cubic feet of carbon monoxide per megawatt produced. A cubic foot of carbon monoxide pollutes the environment, and has a
Suppose that government allows firms to trade their permits to emit carbon monoxide.
Q1: What is the competitive price of a permit to emit 1 cubic foot of carbon monoxide? And how much electricity is produced after the permits are traded?
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