Question

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7. The aggregate MAC function for some polluter is given by MAC=200-2E $5jV+zSv9OsAAAAABJRU5ErkJggg==$ where E is measured in millions of tons, and the MD function is given by MD = 2E.                       

1. Graph both functions and solve for the socially-efficient level of emissions.

2. What size emissions tax per ton is needed to achieve the socially-efficient level of emissions? Explain.

3. Compute the total tax bill and total abatement cost to polluters if they reduced their emissions to the socially-efficient level. What is the net gain to society from this tax policy?

Answer 1

MAC ,* ,MD AH Socially efficient uel: MD 260 MAC MP 2E Or, 200-2E A TC MAC * at E MAC MD tax per ton n : The 001 = v3z = ton tax Total tax biw : = 5 00 0 Tax tax E Cost Abatemenk cost ATC MAC - O Un requlated emission: .. 200-2E X '. TAC = 2500 emission of E Total damage from TD 100 X 200 Tota domase rom emissiom of £** So 'n 2 aoate ment : TD. -TD 1 Benefironm