wo power plants operate in the same town. Each plant currently emits 7 tons of emissions per wear or 14 tons per year total. The town wishes to reduce emissions to 10 tons per year overall to achieve an abatement target of 4 tons per year. Power plant 1 has marginal abatement costs given by: MC₁-12-2A₁. Power plant 2 has marginal abatement costs given by: MC2 = 10-A₂ Suppose the government wished to cost-effectively achieve the abatement target using a Pigouvian Tax. What tax should the government set to do so? Assume the marginal benefits of abatement are zero.

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Chapter1: Making Economics Decisions
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Two power plants operate in the same town. Each plant currently emits 7 tons of emissions per
year or 14 tons per year total. The town wishes to reduce emissions to 10 tons per year overall to
achieve an abatement target of 4 tons per year. Power plant 1 has marginal abatement costs given
by: MC₁ = 12-2A1, Power plant 2 has marginal abatement costs given by: MC2 = 10-A2. Suppose
the government wished to cost-effectively achieve the abatement target using a Pigouvian Tax.
What tax should the government set to do so? Assume the marginal benefits of abatement are
zero.
Transcribed Image Text:Two power plants operate in the same town. Each plant currently emits 7 tons of emissions per year or 14 tons per year total. The town wishes to reduce emissions to 10 tons per year overall to achieve an abatement target of 4 tons per year. Power plant 1 has marginal abatement costs given by: MC₁ = 12-2A1, Power plant 2 has marginal abatement costs given by: MC2 = 10-A2. Suppose the government wished to cost-effectively achieve the abatement target using a Pigouvian Tax. What tax should the government set to do so? Assume the marginal benefits of abatement are zero.
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