Your company wants to do their part to reduce pollution. They commit to reducing their greenhouse gasses by 12 tons per year. The company can pay for a reforestation project carbon offset at $8 per ton. Or you can modify your production by abating a ton of pollution.The marginal cost of abating the first ton of greenhouse pollution is $4 with each additionalabated ton costing $1 more (i.e. $5,$6, etc). How much will it cost in total to abate the 12 tons without using the reforestation offsets? What is the best combination, cost wise, using abatement and reforestation offsets? How much does the company save by using the offsets?
Your company wants to do their part to reduce pollution. They commit to reducing their greenhouse gasses by 12 tons per year. The company can pay for a reforestation project carbon offset at $8 per ton. Or you can modify your production by abating a ton of pollution.The marginal cost of abating the first ton of greenhouse pollution is $4 with each additionalabated ton costing $1 more (i.e. $5,$6, etc). How much will it cost in total to abate the 12 tons without using the reforestation offsets? What is the best combination, cost wise, using abatement and reforestation offsets? How much does the company save by using the offsets?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Your company wants to do their part to reduce pollution. They commit to reducing their greenhouse gasses by 12 tons per year. The company can pay for a reforestation project carbon offset at $8 per ton. Or you can modify your production by abating a ton of pollution.The marginal cost of abating the first ton of greenhouse pollution is $4 with each additionalabated ton costing $1 more (i.e. $5,$6, etc).
- How much will it cost in total to abate the 12 tons without using the reforestation offsets?
- What is the best combination, cost wise, using abatement and reforestation offsets?
- How much does the company save by using the offsets?
Expert Solution
Step 1
Optimal combination is where the total surplus is maximized.
Optimal consumption is the situation where MB = MC
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