A river is being used by both a chemical factory for waste disposal and a salmon fishery for fish reproduction. Waste emissions from the factory detrimentally affect fish reproduction at the downstream salmon fishery. The chemical factory's emission levels are currently unregulated. The marginal damage caused to the salmon fishery is given by MD=4e, where e is the level of emissions discharged into the river per month by the chemical factory. To reduce its emissions, the chemical factory would face marginal abatement costs of MAC-800-16e. Suppose that instead of a constant tax of ST per unit of emissions, the government enacts a two- rate tax system, where the higher rate (call it TH) is designed to achieve the efficient level of emissions, and the lower rate (call it TL) is designed to collect just enough tax revenues to cover the damages from remaining emissions. 23. At what amount per unit should the government set for the higher rate? S 24. At what amount per unit should the government set for the lower rate? $ 25. The two-rate tax system would generate a net gain to society of $

A river is being used by both a chemical factory for waste disposal and a salmon fishery for fish reproduction. Waste emissions from the factory detrimentally affect fish reproduction at the downstream salmon fishery. The chemical factory's emission levels are currently unregulated. The marginal damage caused to the salmon fishery is given by MD=4e, where e is the level of emissions discharged into the river per month by the chemical factory. To reduce its emissions, the chemical factory would face marginal abatement costs of MAC-800-16e. Suppose that instead of a constant tax of ST per unit of emissions, the government enacts a two- rate tax system, where the higher rate (call it TH) is designed to achieve the efficient level of emissions, and the lower rate (call it TL) is designed to collect just enough tax revenues to cover the damages from remaining emissions. 23. At what amount per unit should the government set for the higher rate? S 24. At what amount per unit should the government set for the lower rate? $ 25. The two-rate tax system would generate a net gain to society of $

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 7E

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Following are the marginal abatement costs of three firms . Suppose each firm is currently emitting 10 tons / week , so the total emissions are 30 tons / week . Suppose we wish to reduce total emissions by 50 % , to 15 tons per week . The following table provides marginal abatement costs for each firm . a ) What is the total cost if each firm cuts total emission by 50 % from their current levels . b ) What is the total cost if the total emissions decrease by 50 % ( to 15 tons per week ) that meets the equi - marginal principle . c ) From the society's point , which method of reducing ( a or b above ) emissions is better ? Provide a reason .
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