Consider the emission-abatement decision made by a coal power plant. The marginal benefits of emitting an...

Transcribed Image Text:

Consider the emission-abatement decision made by a coal power plant. The marginal benefits of emitting an additional ton of pollution are given by MB = 21 - 1/2X, where X denotes tons of emissions. In addition, the marginal costs of emissions, borne by society, are given by MC = 1/4X. a. Calculate the efficient level of emissions (X*) and the level of emissions chosen by the power plant in the absence of any policy intervention (XO). b. Suppose that there is only one "victim affected by the pollution damages and that all assumptions of the Coase Theorem hold. If this victim has the rights to a clean environment, what is the compensation ($C/ton) the power plant has to offer to the victim in order to be allowed to emit X*? c. Now suppose an emission standard is imposed on the power plant. What is the efficient level of this standard (Xmax)? Calculate the net benefits for the producer (NBst) under this efficient standard. d. Suppose instead that an emission tax is imposed. Calculate the efficient level of this tax (ST/ton) and the corresponding producer net benefits (NBt). Consider the emission-abatement decision made by a coal power plant. The marginal benefits of emitting an additional ton of pollution are given by MB = 21 - 1/2X, where X denotes tons of emissions. In addition, the marginal costs of emissions, borne by society, are given by MC = 1/4X. a. Calculate the efficient level of emissions (X*) and the level of emissions chosen by the power plant in the absence of any policy intervention (XO). b. Suppose that there is only one "victim affected by the pollution damages and that all assumptions of the Coase Theorem hold. If this victim has the rights to a clean environment, what is the compensation ($C/ton) the power plant has to offer to the victim in order to be allowed to emit X*? c. Now suppose an emission standard is imposed on the power plant. What is the efficient level of this standard (Xmax)? Calculate the net benefits for the producer (NBst) under this efficient standard. d. Suppose instead that an emission tax is imposed. Calculate the efficient level of this tax (ST/ton) and the corresponding producer net benefits (NBt).

Answer rating: 100% (QA)

The detailed answer ... View the full answer