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please help me with part c ASAPPP Suppose that two firms emit a pollutant. The marginal cost of reducing pollution for each firm is as
please help me with part c ASAPPP
Suppose that two firms emit a pollutant. The marginal cost of reducing pollution for each firm is as follows: MC1=10e1 and MC2=20e2, where e1 and e2 are the amounts of emission reduced by the first and second firms, respectively. Assume that in the absence of government intervention, Firm 1 generates 100 units of emissions and Firm 2 generates 70 units of emissions. a. If the marginal damage of the pollution equals 200 , what are the optimal amounts of pollution reduction for Firm 1 and Firm 2? (Note that the marginal social benefit can be interpreted as the decline in damage for each unit reduction in pollution emissions!) b. If the government utilizes the policy instrument of an emissions fee to attain the optimal amounts of pollution reduction, what is the emissions fee the government needs to impose? How much revenue can the government raise from the emissions fees? c. Suppose that instead of an emissions fee, the government introduce a tradable permit system and issues 110 permits, each of which allows the emission of one unit of pollution. The pollution permits are allocated equally to Firm 1 and Firm 2 , namely 55 permits for each firm. How many permits are traded between them? What is the maximum (total) amount of money that the buyer is willing to pay for these permits? Based on the answer from (a), is the number of 110 permits optimal from the perspective of social welfare Step by Step Solution
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