Efficiency through Emissions Taxes Consider two firms that emit a uniformly mixed air pollutant (e.g., carbon dioxide).
Question:
Efficiency through Emissions Taxes
Consider two firms that emit a uniformly mixed air pollutant (e.g., carbon dioxide).
The marginal abatement cost functions for Firm 1 and Firm 2 are (subscripts indicate firms):
MAC1 = 100 - 2e1
MAC2 = 100 - 0.50e2
Aggregate emissions for the industry are denoted as E = e1 + e2.
The marginal damage function is:
MD = 0.40E
[1] Write out the aggregate marginal abatement cost (AMAC) function for the industry. Hint: solve the MAC curves for e and sum them.
[2] Draw a graph with emissions on the horizontal axis and include the MD and AMAC curves.
[3] What is the efficient level of aggregate emissions (E*)? The numeric value, not just the point on the graph.
Microeconomics
ISBN: 9781464146978
1st Edition
Authors: Austan Goolsbee, Steven Levitt, Chad Syverson