Question

1) (25 points) A firm is considering adopting a new pollution abatement technology. Assume that its current marginal abatement cost function with its existing technology is If it adopts the new technology, its new marginal abatement cost function will be MACN-4-0.5E a) Imagine the government imposes a $2 tax on emissions. What level of emissions does the firm choose if it does not adopt the new technology? How much does the firm pay in taxes? What are the firm's total abatement costs? b) Again imagine the government imposes a $2 tax on emissions. What level of emissions does the firm choose if it does adopt the new technology? How much does the firm pay in taxes? What are the firm's total abatement costs? c) Assume the government imposes a $3 tax on emissions. What level of emissions does the firm choose if it does not adopt the new technology? How much does the firm pay in taxes? What are the firm's total abatement costs? d) Again imagine the government imposes a $3 tax on emissions. What level of emissions does the firm choose if it does adopt the new technology? How much does the firm pay in taxes? What are the firm's total abatement costs? If the firm's cost of adopting the new technology is $3, will it adopt the new technology with an emissions tax of $2? $3? Do the firm's total costs (tax payment plus total abatement costs plus adoption costs if new technology adopted) go up or down when the emissions tax rises from $2 to S3? e) f)

Answer 1

AnSe o bau demen techolo -technology ¡兰 the reca -le ch a batomont Cost fanclron 0 一.la»- $ E. 32

b) doos adept 2-5 EN C a 22 3.2 -imposen t-on enunior).← aFZ (£).the Turronaut

MACo8 $ 6 Erruni on :- 3- 5 2 8