! Suppose there are two firms in the world with marginal costs of abatement given by:MC^ = X4.MC® = 3XEach firm is emitting 3 tons of CO2 initially, for a total of 6 tons.Suppose the marginal benefit curve is vertical (a threshold effect) at X = 4. This implies X*=4.a)Suppose the government decides that the firms should split the burden, so each onewill do 2 units of abatement. What is the total cost to firm A, firm B, and the two together?b)Apply the equimarginal principle.What is the cheapest way to reach X* (i.e. how much abatement do A and B do)?

Additional benefits are the maximum amount that a consumer will pay for an additional item or…

4. Suppose there are two firms in the world with marginal costs of abatement given by: MC“ = X MC" - 3X Each firm is emitting 3 tons of CO2 initially, for a total of 6 tons. Suppose the marginal benefit curve is vertical (a threshold effect) at X = 4. This implies X*=4. а), Suppose the government decides that the firms should split the burden, so each one will do 2 units of abatement. What is the total cost to firm A, firm B, and the two together?

4. Suppose there are two firms in the world with marginal costs of abatement given by: MC“ = X MC" - 3X Each firm is emitting 3 tons of CO2 initially, for a total of 6 tons. Suppose the marginal benefit curve is vertical (a threshold effect) at X = 4. This implies X*=4. а), Suppose the government decides that the firms should split the burden, so each one will do 2 units of abatement. What is the total cost to firm A, firm B, and the two together?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter19: Externalities And Public Goods

Section: Chapter Questions

Problem 19.7P

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