In a region that must reduce emissions, three polluters currently emit 30 units of emissions. The...

  

Transcribed Image Text:

In a region that must reduce emissions, three polluters currently emit 30 units of emissions. The three firms have the following marginal abatement cost functions that describe how marginal costs vary with the amount of emissions each firm reduces. Firm Emissions Reduction 1 23 2 4 5 6 7 68 9 10 Firm 1 Marginal cost $1.00 $1.50 $2.00 $2.50 $3.00 $3.50 $4.00 $4.50 $5.00 $5.50 Firm 2 Marginal Cost $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 $9.00 $10.00 Firm 3 Marginal Cost $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 $9.00 $10.00 $11.00 Suppose this region needs to reduce emissions by 14 units and plans to do it using a form of cap-and-trade that auctions allowances off to the highest bidder. a. How many allowances will the control authority auction off? Why? b. Assuming no market power, how many of the allowances would each firm be expected to buy? Why? In a region that must reduce emissions, three polluters currently emit 30 units of emissions. The three firms have the following marginal abatement cost functions that describe how marginal costs vary with the amount of emissions each firm reduces. Firm Emissions Reduction 1 23 2 4 5 6 7 68 9 10 Firm 1 Marginal cost $1.00 $1.50 $2.00 $2.50 $3.00 $3.50 $4.00 $4.50 $5.00 $5.50 Firm 2 Marginal Cost $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 $9.00 $10.00 Firm 3 Marginal Cost $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 $9.00 $10.00 $11.00 Suppose this region needs to reduce emissions by 14 units and plans to do it using a form of cap-and-trade that auctions allowances off to the highest bidder. a. How many allowances will the control authority auction off? Why? b. Assuming no market power, how many of the allowances would each firm be expected to buy? Why?

Answer rating: 100% (QA)

ANSWER Firm emissions reduction 1 2 3 4 5 6 7 8 9 10 Firm 1 marginal cost 100 150 ... View the full answer