Question

For questions (2) and (3) suppose the government imposes an emission standard on the firms requiring Firm 1 to reduce emissions by 30 tons and Firm 2 to reduce emissions by 20 tons. Question 2 10 pts Does the emission standard bring about a cost-effective allocation of pollution control responsibility? Yes NO Question 3 10 pts Calculate the total cost of pollution control for Firm 1 and for Firm 2. TCC1 - $ TCC2 = $

Answer 1

Q) 81) MCI = Q1/2, MC2-202 . at cost effective sol, MG = MC2 058 = 202 & qutq2=50. Qi= 402 put Q = 50-92, 80 50-02 = 402 50 = 502, Qyr = 10, Q. * = 40. And 02) Q = 30, 92 =20, then MG= 30/9 =15 M2= 2X20 = 40. not cost effective soln. as MU & MC2, 8o. It is 03 NOW Tg = sig den = (42) 50 $(30)2 = 225 TO price dez - %(Q713? (20)2 = 400. TC2 = Q4) Now pollution Tax= equilibrium value of MC at cost effective Solution - MG MC2 * = 40 = 20$ Ang 25) Gout Revenue = total emission & tax= 50x20 = $1000 And

Q6) Tradable permit a as A has lower I will Marginal Abatement cost (MAC), then always seu permits & 2 he will buy Now After Trade of 50 permits, Firmy. Controls = bot units = Q1, Initially emitting 50 tons, 80, abates 40 units, & emits only 10 tons, Initially I had 20 permite , It was free to emit 20 units, thus 7 has sold 10 permits to from 2.) El has 10 allowances ? p2 has 40 allow ances J And 2 I has 8 Kas sold to allowances bought 10 olource - #ru Of Mkt price of Iradable permit - Eqm vatue of MAC at cost effective s010 = $20 Ans