Based on my derivation of the industry mac curve the

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Unformatted text preview: industry abatement as above) would be between the two firms. Based on my derivation of the industry MAC curve, the cost effective dis1 tribution would see firm 1 abate 10 and firm 2 abate 11 of any industry 11 abatement target. So firm 1 would abate 40 and firm 2 would abate 4. [5] (e) What would the socially optimal level of total emissions be? Briefly explain your answer. First we can find the socially efficient level of abatement by setting MAC for the industry to equal MDC. MACT = MDC AT = 50 11 AT = 550 (23) (24) (25) So the socially efficient level of abatement is 550 litres. To solve for the socially efficient level of emissions, we need to subtract this level of abatement from the initial, unregulated level of emissions. This is found by setting the original MAC curves as a function of emissions equal to zero (since when there is no abatement, MAC equals zero). MAC1 100 − 0.1E1 E1 MAC2 25 − E2 E2 ET = = = = = = = 0 0 1, 000 0 0 25 1, 025 So the socially efficient level of emissions is 1,025 - 550 = 475 litres. 3 (26) (27) (28) (29) (30) (31) (32) 3. Suppose that...
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