1a1 a1 a1 a2 10a2 a2 11a2 a2 mact mac2 5 5 6 7 8 9 10

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Unformatted text preview: r the industry MAC curve. MAC1 .1A1 A1 A1 + A2 10A2 + A2 11A2 A2 MACT = MAC2 [5] (5) (6) (7) (8) (9) (10) (11) (12) (b) Calculate the total cost of abatement if each firm is required to abate 22 litres of emissions. (Show your work). Using the individual firm MAC functions as a function of abatment, we can calculate total abatement costs for each firm as the area under the MAC curves. These will be the area of a triangle since the MAC curves as a function of abatement are rays from the origin. TAC1 TAC1 TAC2 TAC2 TACT [4] MAC2 A2 10A2 AT AT AT AT = 11 AT = 11 = = = = = = = = = = = .5(22 ∗ 0.1 ∗ 22) 24.2 .5(22 ∗ 1 ∗ 22) 242 TAC1 + TAC2 = 266.2 (13) (14) (15) (16) (17) (c) Briefly explain whether or not this allocation of abatement is cost effective. In order for this to be cost effective the marginal abatement costs of each firm would have to be equal: MAC1 MAC1 MAC1 MAC2 MAC2 = = = = = 0.1A1 0.1 ∗ 22 2.2 A2 22 (18) (19) (20) (21) (22) These are not equal so this is not a cost effective allocation of abatement. 2 [3] (d) Briefly state what the cost effective distribution of an industry abatement target of 44 litres (same total...
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This note was uploaded on 01/17/2014 for the course BUSINESS 121 taught by Professor Na during the Fall '12 term at Wilfred Laurier University .

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