Question

a) Suppose the socially efficient emissions level is 100 kg of carbon monoxide per month. If a uniform emissions tax of $200 per kg is set,what will be L’s private compliance cost and what will be H’s private compliance cost?
b) Suppose that, instead of a uniform emissions tax, a uniform standard was set at 50 kg. per month per polluter.What will be L’s private cost to comply with this standard? What will be H’s private cost to comply with the standard?
c) Would the polluters prefer the uniform emissions tax or the uniform standard?

This graph shows the MAC's for two polluters, L and H. Answer the following questions based on the information given in this graph (5 marks) 600 MACH = 600-SE: 500 + 400 + 300 + MACL = 240 - 2EL 2007 _Tax per kilogram 10 20 40 00 60 80 100 120 Emissions of carbon monoxide (kilograms per month

Answer 1

A) L will only emit 20 kg Co.

And it's complaince cost=1/2*(120-20)*200+200*20=100*100+4000=14,000

H will emit 80 kg Co

And it's complaince cost=1/2*(120-80)*200+200*80=100*40+16,000=20,000

B)MAC(L) at E(50)=240-2*50=140

So compliance cost of firm L=1/2*140*(120-50)=70*70=4900

MAC(H) at E(50)=600-5*50=350

So compliance cost firm H=1/2*350*(120-50)=350*35=12,250

C)The compliance cost each firm is higher with emission tax compare to uniform standard,so both firms will prefer uniform standard.