Modify example 9 2 by assuming there is only one firm Assume that both and 1 can take two values L , H , and L , H Denote p LL Pr( L , L ) as the probablity that both parameters take their low values, and similarly define p LH , p HL , and p HH Define abatement costs by C(l) cl 2 2 and damages by D...

Based on the information provided and the modification of Example 92 to a single firm scenario we would approach the problem in two stages first by se ...

Modify example 9.2 by assuming there is only one firm. Assume that both and 1

Question:

Modify example 9.2 by assuming there is only one firm. Assume that both η and ν₁=ν can take two values: ν_L, ν_H, and η_L, η_H. Denote p_LL=Pr(η=η_L, ν=ν_L) as the probablity that both parameters take their low values, and similarly define p_LH, p_HL, and p_HH. Define abatement costs by C(l)=c·l²/2 and damages by D(A)=δ⋅A²/2, where A=η(e^max−νl) is the ambient pollution level.