Below are the marginal abatement costs for three firms. Suppose the EPA wants to limit total emissions

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Question:

Below are the marginal abatement costs for three firms.

Suppose the EPA wants to limit total emissions across firms to fifteen tons per week.

A. Calculate total abatement costs across firms if the EPA uses an emissions standard limiting each firm to five tons per week.

B. Calculate total abatement costs across firms if the EPA achieves its goal by charging an emissions tax of eight dollars/ton.

C. Explain the difference in total abatement costs. Why does the emissions standard, limiting each firm to five tons per week, generate a greater total opportunity cost to society than the emissions tax?

D. In a scenario with multiple firms, under what circumstances would an emissions standard generate the same total abatement cost as an emissions tax?