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ARE176 - and pollution is fixed for both firms Consider the...

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Homework #5 ARE 176: Environmental Economics Due on November 16 th 1. Assume an economy of 2 firms and 2 consumers. The 2 firms pollute. Firm 1 has MS 1 = 5 – e where e is the quantity of emissions. Firm 2 has MS 2 = 8 –2e. Each of the consumers has MD i =e where e is the total amount of emissions the consumer is exposed to. a) Graph the firm-level and the aggregate marginal savings functions b) Graph the aggregate marginal damage functions c) What is the optimal level of pollution? d) What is the appropriate Pigovian fee? e) What is the level of emissions of each firm if the fee you found in (d) is established 2. The Fireyear and Goodstone rubber companies are 2 firms that produce and sell rubber in a highly competitive market at a fixed price of $60 per ton. Producing one ton of rubber results in one ton of emissions that affect the people living nearby. This 1:1 relationship between rubber
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Unformatted text preview: and pollution is fixed for both firms. Consider the following information regarding the costs (in dollars) of producing rubber at the two firms: Fireyear: costs=300+2Q 2 f Marginal costs = 4Q f Goodstone: costs=500+Q 2 g Marginal costs = 2Q g Total pollution emission generated are E f + E g = Q f +Q g . The marginal damage from pollution is $12 per ton of pollution. a) In absence of regulation, how much rubber would be produced by each firm? What is the profit for each firm? b) The local government decides to impose a Pigovian tax on pollution. What is the proper amount of such a tax per unit of emissions? c) What are the post regulation levels of rubber output and profits for each firm?...
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