Two firms emit a particular type of pollution in a region. Firm 1 can abate emissions according to marginal abatement cost function MAC, = 1000 – 4e, and Firm 2 can abate according to MAC, = 1600 – 8e,. %3D Before regulation, Firm 1 emits 250 units, while Firm 2 generates 200 units. The marginal damage function for this type of pollutant is given by MD= e. Note that e, +e, = e. Assuming there are zero fixed costs for abatement, please compare and contrast (with appropriate calculations) a policy of imposing a uniform abatement standard on the firms with a policy of imposing an efficient tax per unit of emissions on the firms.

Two firms emit a particular type of pollution in a region. Firm 1 can abate emissions according to marginal abatement cost function MAC, = 1000 – 4e, and Firm 2 can abate according to MAC, = 1600 – 8e,. %3D Before regulation, Firm 1 emits 250 units, while Firm 2 generates 200 units. The marginal damage function for this type of pollutant is given by MD= e. Note that e, +e, = e. Assuming there are zero fixed costs for abatement, please compare and contrast (with appropriate calculations) a policy of imposing a uniform abatement standard on the firms with a policy of imposing an efficient tax per unit of emissions on the firms.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter19: Externalities And Public Goods

Section: Chapter Questions

Problem 19.9P

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