appose we have two oil refineries in society. Oil Refinery 1 is bigger than Oil Refinery 2. Oil Refinery 1 emits 20 1) (1 point) Find the market marginal abatement cost curve by performing horizontal summation over the two MA illion tons of CO2 and it is less costly for this firm to abate. Oil Refinery 2 emits half as much CO2, 10 million tons, curves for the Oil Refineries. This is the same procedure as finding the market supply curve, but in this case the d it is more costly for this firm to abate. supply curve is for abatement. Draw it on Figure 1 above and label it MACSociety: he Marginal Abatement Costs for each firm are shown on Table 1: 2) (0.5 point) What is the optimal amount of abatement that the Environmental Authority should choose for this able 1: Oil Refinery Marginal Abatement Costs society? Abatement Abatement (Millions of Tons of Oil Refinery ] MAC Oil Refinery 2 MAC (Millions of Tons of Oil Refinery 1 MAC Oil Refinery 2 MAC CO2) CO2) $0.50 $51:00 $5.50 $2.00 $6.00 $1.30 $3.00 $6.50 $2.00 34.00 ST.OU 32.30 $3.00 3) (1 point) If the regulator imposes this amount of abatement how much CO2 will continue to be emitted by the Oil $7.50 $3.00 $6.00 Refineries? How many permits would the Environmental Authority need to issue to achieve this abatement goal? $3.50 $7.00 $8.50 $4.00 $8.00 $9.00 $4.30 $9.00 $9.50 $3.00 $10.00 $10.00 Suppose that the Environmental Authority for this society conducts a study and determines that the marginal abatement benefits for society are as follows: 4) (0.5 point) If the Environmental Authority were to impose a price instrument what would the cost of emitting Figure 1: Environmental Authority Regulation Model one ton of CO2 be? (0.5 point) What would the total abatement cost be in this society if the Environmental Authority imposed either the quantity or the price instrument? Figure 2 shows the marginal abatement costs for Oil Refinery 1 graphed from left to right. Label the opposite axis (the one from rig left) for Oil Refinery 2 and graph the marginal abatement costs for Oil Refinery 2 from right to left. Figure 2: Oil Refinery Marginal Abatement Costs MAC Oil 10 Refinery 1 MAB Society N w ($) 9 10 11 12 13 14 15 16 17 18 19 20 21 2 23 24 25 26 27 28 29 30 Quantity of Abatement (millions tons CO2) - N WA 0 Oil Refinery 1 0 1 12 13 14 15 16 17 18 19 20 Quantity of Abatement (millions tons CO2) 2/3 Row: 25 Column: 1 Words: 681 Spell Check Local backup on '77% APR 2
