The marginal benefit of being able to emit a ton of sulphur dioxide emissions for two firms are given by: MB_X = 320 – ( Ex / 3 ) MB_Y = 500 – ( Ey / 2 ) Note that these marginal benefit figures can be interpreted as marginal cost of abating emission down to levels Ex and Ey. Government regulators want to reduce total sulfur dioxide emissions to a total of 1200 tons. a) If the government imposes the same standard of 600 tons maximum emissions on both firms what would be the total cost of abatement (calculated as the aggregated marginal benefits forgone)? b) If the government distributed 600 tradable pollution permits to each firm what would be the final allocation of these permits after the firms trade them? What would be the total cost of abatement in this latter case?

The marginal benefit of being able to emit a ton of sulphur dioxide emissions for two firms are given by: MB_X = 320 – ( Ex / 3 ) MB_Y = 500 – ( Ey / 2 ) Note that these marginal benefit figures can be interpreted as marginal cost of abating emission down to levels Ex and Ey. Government regulators want to reduce total sulfur dioxide emissions to a total of 1200 tons. a) If the government imposes the same standard of 600 tons maximum emissions on both firms what would be the total cost of abatement (calculated as the aggregated marginal benefits forgone)? b) If the government distributed 600 tradable pollution permits to each firm what would be the final allocation of these permits after the firms trade them? What would be the total cost of abatement in this latter case?

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

Chapter17: Long-term Investment Analysis

Section: Chapter Questions

Problem 2.2CE

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