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Suppose there are two polluters, and they have different marginal abatement cost curves (MAC): MAC1= 25Q1 and MAC2= 10Q2. Q1 and Q2 are the amount
Suppose there are two polluters, and they have different marginal abatement cost curves (MAC): MAC1= 25Q1 and MAC2= 10Q2. Q1 and Q2 are the amount of pollution abated (reduced) by polluter 1 and polluter 2, respectively. Assume that, with no control, each polluter would be emitting 20 units of emissions, with a total emission of 40 units for both polluters. The government wants to reduce the total emissions by 21 units.
- What would be cost effective allocation of emission reduction? Show the cost-effective allocation of pollution in graph and upload it
- If the government wants to achieve the same by using emission tax, how much should they tax?
- How much revenue would the government collect from emission tax?
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