2. Two power producers emit sulfur dioxide (S02). Axion earns a profit of 10 + 20xA -xỉ when it emits XA tons of SO2, and Boson earns a profit of 8 + 40xB -x when it emits xB tons. (i) How much SO2 will the two producers emit? (ii) Suppose that a regulator imposes a binding limit on aggregate emissions. Specifically, emissions must satisfy x4 + XB < x*. Find the Pareto efficient emissions levels for each producer, given the limit on aggregate emissions. (iii) Now suppose that the regulator gives each producer -x* (divisible) emissions permits, each of which permits the holder to emit one ton of SO2. Find a profitable trade (quantity and price per permit) for the producers.

2. Two power producers emit sulfur dioxide (S02). Axion earns a profit of 10 + 20xA -xỉ when it emits XA tons of SO2, and Boson earns a profit of 8 + 40xB -x when it emits xB tons. (i) How much SO2 will the two producers emit? (ii) Suppose that a regulator imposes a binding limit on aggregate emissions. Specifically, emissions must satisfy x4 + XB < x. Find the Pareto efficient emissions levels for each producer, given the limit on aggregate emissions. (iii) Now suppose that the regulator gives each producer -x (divisible) emissions permits, each of which permits the holder to emit one ton of SO2. Find a profitable trade (quantity and price per permit) for the producers.

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:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter16: Government Regulation

Section: Chapter Questions

Problem 9E

See similar textbooks

Similar questions

What is command-and-control environmental regulation?
What are the three problems that economists have noted with regard to command-and-control regulation?
Use the following information to answer Questions 14 – 18. Consider an industry of 2 firms with the following marginal abatement cost functions: MAC1 = 300 – 30e1 MAC2 = 500 – 20e2 [14] What is the aggregate level of emissions without regulation? [15] How much should a regulator allow each firm to emit to limit aggregate emissions to 20 tons cost-effectively? Firm 1 _____ Firm 2 ________ [16] What tax should the regulator set to achieve an aggregate emissions level of 20? [17] Calculate the total abatement cost for both firms of reaching the aggregate emissions level of 20 tons via the tax? Don’t include the tax payments. Firm 1’s Total Abatement Cost _______________ Firm 2’s Total Abatement Cost _______________ [18] Suppose you want to limit aggregate emissions to 20 tons with a competitive tradeable emissions permit system. If Firm 1 is given 5 permits and Firm 2 is given 15 permits, after trading how many permits will each firm end up with? Firm 1 _________ Firm 2 __________
The figure below shows Marginal Damage from emissions, the regulator’s BELIEF about the aggregate marginal abatement cost (MAC) and the TRUE aggregate marginal abatement cost that is unobservable by the regulator. Use the figure to answer Questions 20 – 23. [20] Suppose the regulator issued E1 permits to the industry. What is the competitive market permit price? [21] Suppose the regulator issued E1 permits to the industry. What area(s) represent the welfare loss due to the uncertainty in aggregate marginal abatement costs? [22] Suppose the regulator uses its BELIEF about the AMAC function to achieve efficient emissions control using a per-unit uniform emissions tax. a) What per-unit tax would the regulator set? b) What level of aggregate emissions would result given the regulator’s tax? [23] Suppose the regulator uses its BELIEF about the AMAC function to achieve efficient emissions control using a per-unit uniform emissions tax. a) What area(s) represent the welfare loss due to the…
Suppose that a firm's marginal abatement cost function with existing technologies is MAC = 18 - 2E. If the firm adopts new pollution abatement technologies, then its marginal abatement cost function will become MAC = 9 - E. With an emissions tax of $4, the benefits of adopting the new technologies are $____. (Hint: recall that the benefits of adopting new technologies is simply the difference in total compliance costs.) Please round your final answer to two decimal places if necessary. Answer: ? Not 5
9. Which is not a valid argument favoring the use of output regulation over input regulation?a. Firms may have different ways of reducing pollution.b. Firms may know better than the government how to reduce pollution cheaply.c. It may be easier to monitor the use of technology than the level of emissions.d. Output regulations, when enforceable, can ensure that the efficient level of pollution is not exceeded.
Suppose that a firm's marginal abatement cost function with existing technologies is MAC = 16 - 2E. If the firm adopts new pollution abatement technologies, then its marginal abatement cost function will become MAC = 8 - E. If the government raises the emissions tax from $2 to $3, then the benefits of adopting the new technologies increase by $____. (Hint: recall that the benefits from adopting new technologies are simply the difference in total compliance costs.) THE ANSWER IS NOT 2 or 1.75 Might be 1.25 or 4.50
Figure 3 shows the abatement cost curves of a high-cost side of an industry (MC1) and the low-cost side of the industry (MC2). Abatement runs from left to right; emissions from right to left, as shown. Given this information, answer the following questions: 1. Suppose now that a tradable permit system is imposed in which es permits are given to each firm, and the permits can be traded. Trades are conducted and the permit price settles at the “Market Price of Permits”.What is the amount of pollution the high-cost (MC1) side of the industry abates in the new equilibrium after trading (is it as, al, 0, or ah)? 2. What is the amount of pollution the low-cost (MC2) side of the industry abates in the new equilibrium after trading? Is it al, 0, as, or ah? 3. What is the cost savings from trading for the high-cost (MC1) side of the industry? Is it K, F+G+H+I, H+I+K, or F+G+K? 4. What is the amount paid for permits for the high-cost (MC1) side of the industry? Is it F+G+H+I, G+H+K, G+H+I or…
Consider two competitive firms with the following marginal abatement cost functions: MAC1 = 100 – 2e1 MAC2 = 50 – 0.5e2 1. Without regulation, what is the total level of emissions Eu? 2. If a regulator wants to reduce aggregate emissions to 50 units cost-effectively, how much should each firm emit? Firm 1’s emissions level ________________ Firm 2’s emissions level ________________ 3. If a regulator wants to reduce aggregate emissions to 50 units cost-effectively, what uniform emissions tax should the regulator impose?
Under some conditions, command-and-control pollution standards could be just as good as a cap-and-trade program at bringing about a cost-effective allocation of total abatement responsibility across firms. Furthermore, the regulator could save the cost of running a cap-and-trade program. When would this most likely be the case? a.) If firms have very different technologies, are varying sizes, and there is a mix of older and newer plants, so it is safe to assume that the firms probably have very different marginal abatement cost curves. b.) If all firms have the same types of technologies, are about the same size, and have been in production for approximately the same length of time, so it is safe to assume that each firm’s abatement costs are similar, and the regulator can issue a one-size-fits-all standard. c.) If the regulator gathers detailed information about the technologies employed by every firm so it can figure out each firm’s marginal abatement cost curve. The…
Imagine a firm’s marginal abatement cost function with existing technologies is: MAC = 12 – E. If the firm adopts new pollution abatement technologies, its marginal abatement cost function will be: MAC = 6 – 0.5E. The adoption costs for the new technology are $6. If the government raises the tax on emissions from $2 to $4, the firm's total costs increase by $_____. HINT: Total costs include tax payments, total abatement costs, and (if relevant) adoption costs for the new technology. Select one: a. $12. b. $8. c. $10. d. $16.
Suppose that Penn Products and Teller Industries are both emitting 30 metric tons of perfluorocarbons (PFCs) into the atmosphere. Regulators wish to reduce emissions to 40 metric tons overall, and plan to achieve this with a system of tradable permits. Penn’s marginal abatement costs are given by MACP = 5eP, where eP is the number of metric tons of emissions that Penn is cutting. Thus, the cost of cleaning up the first metric ton is $5, the second ton costs $10 to clean up, and so on. Teller’s marginal abatement costs are given by MACT = 7.5eT, where eT is the number of metric tons of emissions that Teller cuts. a. The lowest-cost way to reduce emissions is found when both firms’ marginal abatement costs are equalized. Equate Penn’s and Teller’s marginal abatement costs, and solve for eP in terms of eT. For each metric ton that Teller cuts, how many tons should Penn cut? b. Because 20 metric tons are to be cut, we know that eP + eT = 20. Use your…