envoecon2 - Tax=MAC 1 =MAC 2 MAC 1 =a 1 MAC 2 =7a 2 a 1 =7a...

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Kelley Benham Homework 2 AEC 3233 1. The MAC of a 1-unit reduction is 1. 2. The total abatement cost of a 1-unit reduction is 0.5. 3. The MAC of a 5-unit reduction is 5. 4. The total abatement cost of a 5-unit reduction is 12.5. 5. For a 10-unit reduction, you would have to set a tax of 10. 6. With a tax of $10, the firm would abate 10 units.
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Kelley Benham Homework 2 AEC 3233 7. The optimal abatement level is 10, with total cost represented by the areas in green and blue and a tax on red and white. By abating one more unit the total abatement cost would be the areas in green, blue, red and orange, and a tax on the area in white. By abating one less unit, the abatement cost would be the area in green, however a tax would be applied to the areas in dark blue, light blue, red and white. 8. Permit price is $43.75 with firm one abating 43.75 unit, and firm 2 abating 6.25.
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Unformatted text preview: Tax=MAC 1 =MAC 2 MAC 1 =a 1 MAC 2 =7a 2 a 1 =7a 2 a 1 +a 2 =50 a 2 +7a 2 =50 8a 2 =50 a 2 =6.25 a 1 =43.75 MAC 1 =1(43.75) =43.75 MAC 2 =7(6.75) =43.75 Kelley Benham Homework 2 AEC 3233 9. With a permit Firm 1 abates the areas in pink, gray, and dark blue. However, with a standard of 25-units, they abate the areas in gray and pink. With a permit Firm 2 abates the areas in grey and purple. With a standard, they would abate the areas in purple, gray, green, pink, and red. With the standard the entire industry suffers a lose, where as with a permit the amount gets abated with both firms paying the same amount. 10. If the two firms have identical curves, the no matter what abatement method, both firms would abate the same. In the real world, firms are not the same so a tax is the best way to encourage abatement....
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This homework help was uploaded on 04/18/2008 for the course AEC 3233 taught by Professor Petrolia during the Spring '08 term at Mississippi State.

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envoecon2 - Tax=MAC 1 =MAC 2 MAC 1 =a 1 MAC 2 =7a 2 a 1 =7a...

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