Suppose there are two firms and they pollute the environment. Their total abatement cost is given below.
Question:
Suppose there are two firms and they pollute the environment. Their total abatement cost is given below.
TC(R1)=1/2(R1)^2,
TC(R2)=2/3(R2)^3/2
Suppose the government wants to reduce pollution by 12 units.
1. Find the cost-efficient way to abate 12 units of pollution. How many of these 12 units would Firm 1 abate?
2. Find the cost-efficient way to abate 12 units of pollution. How many of these 12 units would Firm 2 abate?
3. Choose all the policies below that do not achieve cost efficiency.
A. The government mandates that Firm 1 abates 6 units and Firm 2 abates 6 units.
B. The government mandates that Firm 1 abates 4 units and Firm 2 abates 8 units.
C. The government mandates that Firm 1 abates 5 units and Firm 2 abates 7 units.
D. The government mandates that Firm 1 abates 3 units and Firm 2 abates 9 units.
E. The government mandates that Firm 1 abates 7 units and Firm 2 abates 5 units.
4. What is the lowest abatement cost to society to reduce pollution by 12 units? Use 2 decimals.
5. Suppose the government wants to reduce pollution by mandating that both firms cut pollution by 6 units. What is the abatement cost of society for such a policy? Use 2 decimals.
Economics
ISBN: 978-0073375694
18th edition
Authors: Campbell R. McConnell, Stanley L. Brue, Sean M. Flynn