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 , ) denote a firms cost of abating pollution to level x , where c ( x , ) = 0, c ( 0, ) > 0, and c x < 0. is a variable that affect the firms 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 planners problem is min x E [ D ( x ) + C ( x , )] and the firms problem is min x P ( x ) + C ( x , ) ....
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f09_sol - University of Toronto Faculty of Arts and Science...

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