Chapter 1, Problem 1P

a.

To determine

The implicit cost of a ton of greenhouse gas.

Explanation of Solution

The reduced greehouse gases per year can be calculated as follows.

    $\begin{array}{c}\text{Reduced}\text{Greenhouse}\text{gases}\text{per}\text{year}=\left[\begin{array}{l}\text{Total}\text{Greenhouses}\text{gas}\times \\ \text{Target}\text{Annual}\text{emmission}\end{array}\right]\\ =\text{62,000,000}\times \text{0}\text{.05}\\ =\text{3,100,000}\end{array}$

The reduced greehouse gases per year is 3,100,000.

The implicit cost of a ton of greenhouse gas can be calculated as follows.

$\begin{array}{c}\text{Implicit}\text{Cost}=\left[\frac{\text{Planned}\text{Spendings}}{\text{Reduced}\text{Greenhouse}\text{gases}\text{per}\text{year}}\right]\\ =\left[\frac{\$1,200,000,000}{3,100,000}\right]\\ =\text{\$387}\text{.10}\end{array}$

The implicit cost of greenhouse gas per year is $387.10 per ton.

b.

To determine

The cost to reduce the total emission by 3% over next five years.

Explanation of Solution

The reduced greehouse gases per year can be calculated as follows.

    $\begin{array}{c}\text{Reduced}\text{Greenhouse}\text{gases}\text{per}\text{year}=\left[\begin{array}{l}\text{Total}\text{Greenhouses}\text{gas}\times \\ \text{Target}\text{Annual}\text{emmission}\end{array}\right]\\ =\text{300,000,000}\times \text{0}\text{.03}\\ =\text{90,000,000}\end{array}$

The reduced greehouse gases per year is 90,000,000.

The cost to reduce the total emission can be calculated as follows.

$\begin{array}{c}\text{Total Cost}=\left[\frac{\text{Planned}\text{Spendings}}{\text{Reduced}\text{Greenhouse}\text{gases}\text{per}\text{year}}=\frac{\$\text{X}}{\text{Reduced}\text{Greenhouse}\text{gases}\text{per}\text{year}}\right]\\ =\left[\frac{\$1,200,000,000}{3,100,000}=\frac{\$\text{X}}{90,000,000}\right]\\ \text{X}=\$34,870,000,000\end{array}$

The cost to reduce the total emission by 3% over next five years is $340,870,000,000.