Suppose a Marginal Abatement Cost (MAC) is

MAC1 = 200 - E1

MAC2 = 300 - (3/2)E2

a) Suppose the government wants to reduce emissions to the level found in emissions for each firm if the government wish to reduce aggregate emissions to 200 , or E1+ E2 = 200 by using a carbon tax. What tax level will be required to do so?

b) Calculate the TAC for each firm when using the tax in question (a) using a graph

c) Suppose a uniform emissions standard is set at E=100 for each firm.what is the deadweight loss resulting from reducing emissions to 200 using the uniform emissions standard of E = 100 for each firm?

d) Suppose the government used individual emissions standards to reduce emission, From the viewpoint of society, is this policy preferable to carbon tax? What about for firms? and Why?

e) Suppose that the government does not know the MAC curves and sets a tax equal to $140 per ton of Emission. Given the true MAC curves above, what are the consequences of this policy, in terms of resulting emissions and total abatement costs using a graph