Homework 6

# Homework 6 - 2 )= 8A 2 and MAC(A 3 )= 24A 3 . Currently...

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Homework #6 ARE 176: Environmental Economics Due on November 23 rd 1. Consider the following market for electricity: suppose demand (in megawatt hours) is given by Q= 50-P and that the marginal private cost of generating electricity is \$10 per megawatt hour. Suppose that smoke is generated in the production of electricity and that the marginal external cost from smoke is \$15 per megawatt hour generated. a) Suppose the electricity is produced by an unregulated monopolist. What price will be charged and how much electricity will be produced? b) Graph the monopolist market described above c) If there were no externality, what is the amount of deadweight loss? d) Taking into account the externality, what is the amount of deadweight loss? 2. Three coal mines release selenium into the water of Summersville, West Virginia. Their marginal abatement curves are, MAC(A 1 )= 6A 1 , MAC(A
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Unformatted text preview: 2 )= 8A 2 and MAC(A 3 )= 24A 3 . Currently they each produce 100 thousand emissions each year. a) Graph the individual MAC curves b) Find the aggregate marginal abatement cost. Graph it in your previous figure c) Suppose that the government will require each firm to cut back emissions to 50 thousand per year. What would the total abatement cost be under such standard? d) If instead the government would set an emission fee to achieve the same total level of emissions as in (b), what would the total abatement cost be? How does it compare to your answer in (c)? e) If the people of Summersville all have the same MD i = 0.00008e, and there are 50,000 residents, what is the efficient level of abatement? f) What Pigovian fee would support the abatement level you found in (e)? g) How much would each firm abate if they are charged the fee you found in (f)?...
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## This note was uploaded on 01/27/2011 for the course ARE 176 taught by Professor Farzin during the Fall '08 term at UC Davis.

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