f09_sol - University of Toronto Faculty of Arts and Science...

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Unformatted text preview: University of Toronto Faculty of Arts and Science December Examinations 2009 ECO313H — Matthew A. Turner Duration - 2 hours Examination Aids: No notes or books are allowed, but you may use a calculator. When you write up your answers, your goal should be to (1) be correct, and (2) convince your reader that your answer is correct. Answers which do not achieve these goals will not be awarded full credit. To accomplish the second objective, it is helpful if your work is legible and if all steps are presented, possibly with a line of explanation. Point counts of individual problems are indicated in parentheses. Total points =100. 1. Let C ( x , φ ) denote a firm’s cost of abating pollution to level x , where c ( x , φ ) = 0, c ( 0, φ ) > 0, and c x < 0. φ is a variable that affect the firm’s costs. This parameter is known to the firm, but is uncertain for the planner. Let D ( x ) denote the social damage caused by pollution level x . Finally, let P ( x ; s , l , p ) = sx + p max [ x- l ,0 ] be the penalty function that the planner uses to regulate pollution. Thus, the planner’s problem is min x E [ D ( x ) + C ( x , φ )] and the firm’s problem is min x P ( x ) + C ( x , φ ) ....
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This note was uploaded on 11/04/2010 for the course ECO 313 taught by Professor M during the Winter '10 term at University of Toronto.

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f09_sol - University of Toronto Faculty of Arts and Science...

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