Microeconomics: Principles & Policy
14th Edition
ISBN: 9781337794992
Author: William J. Baumol, Alan S. Blinder, John L. Solow
Publisher: Cengage Learning
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Chapter 3, Problem 4TY
To determine
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Suppose there are two firms 1 and 2, whose abatement costs
are given by c₁ (e₁) and C2 (е2), where e denotes emissions and
subscripts denote the firm.
We assume that c{(e) 0 for i = 1,2 and for any
level of emission e we have c₁'(e) # c₂' (e).
Furthermore, assume the two firms make different contributions
towards pollution concentration in a nearby river captured by the
transfer coefficients ε₁ and 2 such that for any level of emission
e we have C₂'(e)
# The regulator does not know the resulting
C₁'(e) Τι
environmental damages. Using an analytical approach explain
carefully how the regulator may limit the concentration of
pollution using (i) a Pigouvian tax scheme and (ii) uniform
emissions standards. Discuss the cost-effectiveness of both
approaches to control pollution.
Bill’s father read that each year a car’s value declines by 10%. He also read that a new car’s value declines by 12% as it is driven off the dealer’s lot. Maintenance costs and the costs of “car problems” are only $200 per year during the 2-year warranty period. Then they jump to $750 per year, with an annual increase of $500 per year.Bill’s dad wants to keep his annual cost of car ownership low. The car he prefers cost $30,000 new, and he uses an interest rate of 8%. For this car, the new vehicle warranty is transferrable.(a) If he buys the car new, what is the minimum cost life? What is the minimum EUAC?(b) If he buys the car after it is 2 years old, what is the minimum cost life? What is the minimum EUAC?(c) If he buys the car after it is 4 years old, what is the minimum cost life? What is the minimum EUAC?(d) If he buys the car after it is 6 years old, what is the minimum cost life? What is the minimum EUAC?(e) What strategy do you recommend? Why?
Please show each step and formula,…
Chapter 3 Solutions
Microeconomics: Principles & Policy
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- Assume general inflation is 2.5% per year. What is the price tag in 8 years for an item that has an inflation rate of 4.5% that costs $700 today? Please show every step and formula, don't use excel. The answer should be $1203, thank you.arrow_forwardThe average cost of a certain model car was $22,000 ten years ago. This year the average cost is $35,000.(a) Calculate the average monthly inflation rate (fm) for this model.(b) Given the monthly rate fm, what is the effective annual rate, f, of inflation for this model?(c) Estimate what these will sell for 10 years from now, expressed in today’s dollars. Please show all steps and formulas, don't use excel. The answer should be (a) 0.3877%, (b) 4.753%, (c) $55,682arrow_forwardA mining corporation purchased $120,000 of production machinery and depreciated it using 40% bonus depreciation with the balance using 5-year MACRS depreciation, a 5-year depreciable life, and zero salvage value. The corporation is a profitable one that has a 22% combined incremental tax rate. At the end of 5 years the mining company changed its method of operation and sold the production machinery for $40,000. During the 5 years the machinery was used, it reduced mine operation costs by $32,000 a year before taxes. If the company MARR is 12% after taxes, was the investment in the machinery a satisfactory one? Please show every step with formulas and don't use excel. The answer should be 14.8%, thank you.arrow_forward
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