Based on Field &Field, Chapter 5, p. 108 Question 4. The marginal abatement costs of three firms are provided in the table below on page 109. Each firm is emitting now 10 tons/week. Therefore, the total emission of all firms is 30 tons/week. Suppose that society wants to reduce the level of emission by 50%, to 15 tons/week. Calculate the total cost of reducing the level of emission to 15 tons/week

(5 points) Assuming equiproportionate decrease in emissions

Hint: an equiproportionate decrease means that each firm cuts back by the same amount.

Group of answer choices

69

96

100

Based on Field &Field, Chapter 5, p. 108 Question 4. The marginal abatement costs of three firms are provided in the table below on page 109. Each firm is emitting now 10 tons/week. Therefore, the total emission of all firms is 30 tons/week. Suppose that society wants to reduce the level of emission by 50%, to 15 tons/week. Calculate the total cost of reducing the level of emission to 15 tons/week.

(5 points) Assuming equimarginal decrease in emissions

Hint: the common MAC you are looking for is $8 per ton. Hint for both parts (reading the table): the MC for firm 1 to abate its 10th unit and emit 9 units is $4; the MC for firm 1 to abate its 9th unit and emit 8 units is $8; etc

Group of answer choices

69

96

100

Farmers Al and Bob each operate a farm in the same watershed. Each farm uses water and fertilizer to produce both crops and polluted runoff (from nutrients in the fertilizer). Below are the marginal cost equations for abating (i.e., reducing) polluted runoff on each farm (you may find it helpful to think of these as marginal cost functions for producing abatement):

Als marginal cost of abating runoff ($/unit) = 3 Units of runoff abated by Al

Bobs marginal cost of abating runoff ($/unit) = 5 Units of runoff abated by Bob

Currently, Al and Bob each produce 20 units of polluted runoff (a total of 40 units) and neither abates any runoff. Suppose the local environmental protection agency wants to reduce the total amount of polluted runoff generated by Al and Bob to 20 units. In other words:

Units of runoff abated by Al + Units of runoff abated by Bob = 20.

Unfortunately, Al and Bob have a lot of political clout and wont submit to any regulations or penalties that force them to reduce their pollution levels. So instead, the agency offers to pay them for their abatement expenses (this is commonly known as an abatement subsidy).

I. (2 points) Draw (for yourself) the marginal abatement cost curves for Al and Bob, with units of runoff abated on the horizontal axis and marginal cost on the vertical axis. How do the curves look like?

Group of answer choices

The two lines through the origin with slopes of 3 and 5 for Al and Bob, respectively

The two lines are flat with respect to the horizontal axis with intercepts of 3 and 5 for Al and Bob, respectively

o achieve its goal, suppose the local agency asks Al and Bob to abate 10 units each and offers to pay their total abatement costs. What is the total cost to the agency?

Group of answer choices

400

300

250

Considering Als and Bobs marginal abatement costs in part (II), has the agency achieved its abatement goal at the lowest possible cost? Why or why not?

Group of answer choices

Yes, because the Equimarginal Principle was satisfied

No, because the Equimarginal Principle was not satisfied

Yes, because the pollution level was reduced

No, because the pollution level was not reduced enough

Using the Equimarginal Principle, determine the allocation of pollution abatement between Al and Bob that will achieve the agencys goal at the lowest possible cost. How much will each farmer abate? What will be the agencys total expenditure?

Group of answer choices

Units abated by Al and Bob 7.5 and 12.5; Agency total Cost $400

Units abated by Al and Bob 12.5 and 7.5; Agency total cost $375

Units abated by Al and Bob 10 and 10; Agency total cost $355

f the total social benefit (WTP) for 20 units of abatement is $390, does the Equiproportionate Approach in part (II) improve social welfare? What about the Equimarginal Approach in part (IV)? Assume the agencys total expenditure equals the social opportunity cost of abatement.

Group of answer choices

For TB=390 Equiproportionate Approach doesnt improve social welfare but Equimarginal Approach does improve

For TB=390 Equiproportionate Approach improves social welfare but Equimarginal Approach doesnt improve

For TB=390 non approaches improve social welfare because total cost is too high

The best way to achieve an efficient abatement from a social point of view is to divide the amount to be abated by using the Equiproportionate Approach

Group of answer choices

True

False

In order to find the Socially optimal (efficient) level of emission the Marginal Abatement Cost has to be higher from the Marginal Damage

Group of answer choices

True

False

Abatement costs are the costs of reducing the quantity of the residuals being emitted into the environment, or cost of lowering ambient concentrations.

Group of answer choices

True

False