Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

I'm not sure which formula I should apply to these practice questions, could you please explain? Suppose the marginal control costs (MC) and the total

I'm not sure which formula I should apply to these practice questions, could you please explain?

Suppose the marginal control costs (MC) and the total costs (TC) of reducing emissions for two steel producers are:

Producer 1:

MC1= 10Q1

TC1= 5(Q1)2

Producer 2:

MC2= 40Q2

TC2= 20(Q2)2

Where MC1and MC2are the marginal control costs and Q1and Q2are the volumes of emissions reduced by Producers 1 and 2 respectively. With no controls at all, each firm emits 50 units totalling 100 units.

a. Suppose the government allocates emissions reductions equally among the two producers to reduce total emission by half (that is each firm has to reduce emissions by 25 units). Calculate the total cost to each firm (Hint: use the total cost function TC).

b. Calculate the cost-effective allocation of control responsibility if a total reduction of 50 emission units is required. What is the total control cost and how does this compare to part a?

c. If the government wants to charge an emission tax, what per unit tax should they impose?

d. How much total revenue would the Government collect from the emission tax in part b

e. If instead the government used a cap and trade scheme and, based on histrocial emissions, allocated 25 units to each firm. What is the pattern of trade expected? What is the equilibrium price of permits?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Managerial economics applications strategy and tactics

Authors: James r. mcguigan, R. Charles Moyer, frederick h. deb harris

12th Edition

9781133008071, 1439079234, 1133008070, 978-1439079232

More Books

Students also viewed these Economics questions