1 25 points Two pollution sources are located in the same town, immediately next to each other. For every quantity of abatement, marginal costs of abatement for the first source are higher than marginal costs of abatement for the second source. If both the tax and standard achieve the same level of total emissions, is a uniform pollution tax more efficient or less efficient than a uniform pollution standard or are you unable to tell? Why? 2 60 points: 15/section Two factories dump industrial waste into a stream. They can reduce their waste (abate), but it is costly. The Marginal Cost of Abatement (MCA) for factory 1 is 10 + 2A , and for factory 2 is 5 + An, where A is the amount of pollutants that have been abated. The municipal government has opted for a Cap and Trade policy. The cap effectively requires the firms to reduce total pollution by 30 units. Permits are issued to Firms 1 and 2 such that Firm 1 will have to abate by 10 units and Firm 2 will have to abate by 20 units. a) If trade of permits is not allowed, what will be the costs of abatement to each firm? b) If trade of permits is allowed, what will be the abatement and marginal cost levels for each firm? c) What will the total cost of abatement be after trade of the permits? d) If we assume that all permits are bought sold at the marginal cost you found in part b), what will be the net abatement costs for each firm? 3 15 points In accordance with the dual-control approach, suppose New Mexico's NOx abatement standard for existing sources is 5 units (A ) and the EPA's standard for new sources is 12 units (A ). If the two types of sources face the following MCA functions, where each MCA is in thousands of dollars, what economic criterion is violated? Show how you know. For existing sources, MCA, = 1.8A, and for new sources, MCAN = 1.2AN