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**Unformatted text preview: **Second Challenge Environmental Economics: ECO 345 Fall 2011 Good luck! The following formulas may be useful: Efficient Allocation and market allocation of goods with externalities, Profits P S = MC ( S ) + MD ( S ) , P S = MC ( S ) , = p S- C ( S )- payments (1) Efficient Allocation and market allocation of emissions MD 1 ( E ) + MD 2 ( E ) = MD ( E ) = MC ( E ) = MC 1 ( E 1 ) = MC 2 ( E 2 ) (2) MC ( E , 1 ) = MC ( E , 2 ) = 0 , E = E 1 + E 2 , E = E , 1 + E , 2 (3) Pigouvian Tax, Tradable permit t = MD 1 ( E ) + MD 2 ( E ) = MD ( E ) = MC ( E ) = MC 1 ( E 1 ) = MC 2 ( E 2 ) (4) P = MD 1 ( E ) + MD 2 ( E ) = MD ( E ) = MC ( E ) = MC 1 ( E 1 ) = MC 2 ( E 2 ) (5) Monopolist, market and Pigouvian tax MR = MC, P ( q ) = MC ( q ) + MD ( q ) (6) t = MD 1 ( q ) + MD 2 ( q ) = MD ( q ) = MC ( q ) , MR = t + MC (7) Compliance costs, Pigouvian Tax vs emissions standard Cost = 1 2 ( E , 1- E ) ( MC 1 ( E )- 0) + 1 2 ( E , 2- E ) ( MC 2 ( E )- 0) (8) Cost = 1 2 ( E , 1- E 1 ) ( t - 0) + 1 2 ( E , 2- E 2 ) ( t - 0) (9) 1 Taxes and Permits under uncertainty t = MD ( E ) = MC ( E ) , MD parenleftBig...

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