ECN437Exercise4

ECN437Exercise4 - ECN437 Exercise4 DueMonday2/20

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ECN437 Exercise 4 Due Monday 2/20 When pollution control regulations are first established (or when they are  substantially tightened) existing plants are often given special, more lenient  rules or exempted from the regulations entirely. This is known as  “grandfathering” and it is very controversial, at least in retrospect. In some  states, factories that were grandfathered decades ago remain exempt from  essentially all air pollution regulations. This problem asks you to analyze grandfathering by working through a  stylized example. Suppose there are 1 million households that consume a  particular product. Each household’s demand for the good is given by P =  100 – 4*Qi, where Qi is the amount of the good household i consumes. The  product is produced by 100 identical, perfectly-competitive firms, each of  which has a marginal cost of $20 and a maximum capacity of 200,000 
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ECN437Exercise4 - ECN437 Exercise4 DueMonday2/20

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