Suppose there are two firms generating emissions:

Firm 1 has marginal abatement cost function MAC1 = 500-5E
Firm 2 has marginal abatement cost function MAC2 = 800-5E

A) Suppose that the regulator would not only sets a uniform standard of Es = 30, but also applies penalties to firms that emit above the standard.

The marginal penalty curve is MPC = 350 + (E-Es) if E>Es and 0 otherwise.

Where E is the emissions emitted by a firm and Es is the standard. Penalties are applied to each unit of emissions in excess of the standard at the rate PMC.

What are the compliance costs for each firm, and for the two firms together? (total marginal abatement costs)

B) Suppose that the regulator would not only sets a uniform standard of Es = 30, but also applies penalties to firms that emit above the standard.

The marginal penalty curve is MPC = 350 + (E-Es) if E>Es and 0 otherwise.

Where E is the emissions emitted by a firm and Es is the standard. Penalties are applied to each unit of emissions in excess of the standard at the rate PMC (each unit in excess of the standard is charged at the same rate).

What are the total penalties levied on each firm and for the two firms together?

C) What is the aggregate MAC for the two firms? show work please

Answer rating: 100% (QA)

The regulation standard is the permitted emission by the authority to control ... View the full answer