Question: Please help me with these 2 questions Suppose that two firms emit a certain pollutant. The marginal cost of reducing pollution for each firm is
Please help me with these 2 questions
Suppose that two firms emit a certain pollutant. The marginal cost of reducing pollution for each firm is as follows
MC1 = e1 (firm 1)
MC2 = 4 e2 (firm 2)
where e1 and e2 are the amounts (in tons) of emissions reduced by the first and the second firm, respectively. Assume that in the absence of government intervention each firm generates 80 units of emissions (160 in total).Answer the following:
1. Suppose regulators decide to reduce total pollution bye*=100. What would be society'stotalcost of reducing pollution by e* if the regulator imposed that both firms reduce emissions by the same amount, that is e1=e2=(e*/2). {Hint: Remember that the Total Cost can be computed as the sum of Marginal Costs} Total Cost=
2.. What emissions fee (per unit of emission) should be imposed to achieve the cost effective outcome? Fee=
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
