Question

1. The use of energy is one of the major causes of pollution and greenhouse gases that lead to climate change. It is desirable to reduce the emissions from energy use.  Suppose there are two firms whose marginal abatements costs are as follows: MAC1=q1 and MAC2=q2

where q₁is the amount of emissions reduction by firm 1 and q₂is the amount of emissions reduction by firm 2.

1. In the context of this question, what is “marginal abatement cost”?
2. Draw the two marginal abatement costs in a single diagram.
3. if both firms reduce the total amount of emissions by 30 units, calculate the quantities by which each firm will reduce emissions.
4. Calculate the total abatement cost if the two firms are undertaking emissions reduction efficiently.
5. What would the total abatement cost be if the two firms reduce emissions by equal amounts?
6. What is the level of tax that would be required to achieve the efficient level of emissions reduction?

Answer 1

The use of energy is one of the major causes of pollution and greenhouse gases that lead to climate change. It is desirable to reduce the emissions from energy use.  Suppose there are two firms whose marginal abatements costs are as follows:

MAC1=q1 and MAC2=q2

where q1is the amount of emissions reduction by firm 1 and q2is the amount of emissions reduction by firm 2.

b.Draw the two marginal abatement costs in a single diagram.

MAC, MAC/ MAC, MAC2 - % -22. c) If both firms reduce the total amount Of emissions by 30 units.caccate the quantities by which each form will reduce emissions → At cost efficient Equation MACI = PIACZ 9,=292 and qi+q2 = 30 So, 2q2 +Q2=30 q2 = 30 1 42 = 10 q1 = 201 ay Calculate the total abalement cost it the two Firms are undertaking emissions reduction efficiently - How TAC = TAC,+TAC Smac, dq1 + "SMAC, 042.

i 4.230 +2 [ 93) - 400 at 100 - 200 + 100 = 300 $ 1 e) What would the total abatement cost be of the two firms reduce emission by equal amounts ? 3 How equal amounts 2 =q2 = 2/2 21 = 42 = 30 (21= q2 = 15 50. TAC = "'S mac, dqı + "Smaca dqa *(0,0); } [9:*)- 2257 225 - q r Jo - +225 2 -- 112.5 + 225 = 331.5

f) What is the level of tax that would be required to achieve the efficient level of emission reduction. + so the level of touc = MAC at cost efficient SO Z* - MAC = 20$