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gview1 - ECMAfld Solution for 2008 Final Exam#43 Abatement...

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Unformatted text preview: ECMAfld: Solution for 2008 Final Exam #43. Abatement Question M en=ssu —2AT Topsail Tofu: 1] Find MCI and ME: MCFIZAI, lucz=4nz 2] Find MEAT (D n1=u12 MI:1 ® h2=1f4MC2 From Gi® hFMCAIE 3] Set Mile: MBA. to getthe optimal amount of Abaternentfotthe society AFIR MBA=MCA£I 3’6 4] Find A1 at Azioptim al amount of abatement for in diyich al firm 5] A1=1f12 MCA=48 A2=1f4MC2=144 5] Ideal amount oftax is just optimal amount of MBMMEA. $5?E Why? Because in theory, firm will consider two d'Ioices: pay to clean, or pay for tax. If their oost to clean is over the tax, they will just pay the tax. That’s why in the ideal situation, government should set the tax equal to eptim al MBAIMEA, so that firms will r-dI the optimal amount of ahateIn ent. 6] Equal share [Direct control]: A1 =Az=1f2 iii-[=95 TEA: 1121+ TC2=6A12+2Azz=TEHZE 3'] Tradable Permits: Sincefimfl'willbuy_ 48 pennits [to reduce its abatement from SE to 48] and firm 2 will sell 43 pfltnltlemllJnuease, it's-agatem ent from Bfite 144} 48 perm its should he Issu ed. {:31 Tetal cost -' l I _ lryEo-r'llStIsion: — _|] ldealtax isjust the optim—al MBAIM CA_ . |ll} Number of permits is the difference between firm’s optimal amount and the direct control I." amount [split into half}. 5.3:} ”'J a '_. i. -. -. l- ' 'n' I" -.___ ___—' 'I’J-I if "L'_"'.| .'. ..r',.-r ...
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