Global warming is mainly caused by Greenhouse gas (GHG) (i.e., CO2) emission. Aiming to be carbon neutral by 2060, China starts penalizing the polluting firms by introducing a specific tax to those firms. (Source: https://www.nature.com/articles/d41586-020-02927-9) Suppose you are the owner of a profit-maximizing firm in China that produces goods with carbon emission. The specific tax (with tax rate t) is imposed in proportion to the quantity of your firm’s output (q). The market of your firm’s product is assumed to be perfectly competitive. Assume there is no fixed cost: use a fully labelled diagram to show the effect of the tax on the cost curves, and briefly discuss the movement of the curves. (10 marks) Suppose China government decides to raise the tax rate. Discuss the impact of the rise on your firm's output level with economic models wherever necessary. (20 marks)

Global warming is mainly caused by Greenhouse gas (GHG) (i.e., CO2) emission. Aiming to be carbon neutral by 2060, China starts penalizing the polluting firms by introducing a specific tax to those firms. (Source: https://www.nature.com/articles/d41586-020-02927-9) Suppose you are the owner of a profit-maximizing firm in China that produces goods with carbon emission. The specific tax (with tax rate t) is imposed in proportion to the quantity of your firm’s output (q). The market of your firm’s product is assumed to be perfectly competitive. Assume there is no fixed cost: use a fully labelled diagram to show the effect of the tax on the cost curves, and briefly discuss the movement of the curves. (10 marks) Suppose China government decides to raise the tax rate. Discuss the impact of the rise on your firm's output level with economic models wherever necessary. (20 marks)

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter28: Antitrust And Regulation

Section: Chapter Questions

Problem 4E

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Assume the firm has historical emissions of 10 units of carbon and the government regulator gives the firm 7 permits to pollute. Each permit allows 1 unit of pollution.
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