Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN: 9781305506381
Author: James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher: Cengage Learning
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Chapter 17, Problem 2.2CE
To determine
To describe: The effect on our analysis of CO2 emissions trading allowances rising in
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There is a company that emits a moderate amount of fossil fuel emissions. It would cost them 10 dollars to reduce emissions by 1 tonne, an additional 15 dollars to reduce emissions by a second tonne, an additional 25 dollars to reduce emissions by a third tonne, an additional 30 dollars to reduce emissions by a fourth tonne, and an additional 100 dollars to reduce emissions for a fifth tonne. If the price for a 1 tonne of emissions in a cap-and-trade program is 25 dollars, how many tonnes of emissions is the company likely to reduce?
a. one tonne
b. two tonnes
c. three tonnes
d. four tonnes
c. 5 tonnes
A firm has a marginal emissions benefit of 100-0.5*E in each of 2 years,
where E measures emissions in tons. The marginal cost of emissions to
society is 75/ton. The discount rate is 10% and the marginal cost of
emissions also grows at 10% per year.
The government decides to give the firm permits to emit 50 tons of
emissions per year, but allows the firm to "bank" or "borrow" permits across
the two years so that this effectively acts as a 100 ton cap on emissions over
2 years. How much will the firm emit in each year? If all firms are identical to
the one you analyze here, is the government issuing too many or too few
emission permits relative to the efficient level? How do you know?
An electricity generation company currently emits 99 tons of sulfur dioxide. Sulfur dioxide emissions contribute to respiratory illness and create acid rain when combined with other chemicals in the atmosphere. The table below shows the marginal cost of abatement, which increases as different abatement techniques are used.
Quantity Abated (tons)
Marginal Cost of Abatement per Ton
11
$5,000$5,000
22
$8,000$8,000
33
$15,000$15,000
44
$20,000$20,000
55
$30,000$30,000
66
$42,000$42,000
77
$56,000$56,000
88
$80,000$80,000
99
$135,000$135,000
Suppose the government imposes a pollution tax of $44,000$44,000 per ton of sulfur dioxide emitted. How many tons of sulfur dioxide will the company abate, and how many tons of sulfur dioxide will it emit? Write the exact answers. Do not round.
Chapter 17 Solutions
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
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