The Environmental Protection Agency's Air Enforcement page notes: There are approximately 1,100 coal-fired electric utility units in the United States with an overall capacity of 340,000 megawatts. This sector emits about two-thirds of the nation's emissions inventory of sulfur dioxide ( SO2) and approximately one-

2 third of the nitrogen oxides (). Investigations of this sector have identified a high noncompliance rate when old plants are renovated or upgraded. and are two of the multiple utilities operating coal-fired plants charged with violating Clean Air-Act standards. Suppose their respective marginal costs associated with pollution reduction (abatement) are: : = 20 + 4 : = 10 + 8 The marginal benefit of pollution reduction is = 400 - 4. a. What is the socially optimal level of each utility's pollution abatement? b. Compare the social efficiency of three possible outcomes: i. require each to reduce pollution by the same amount ii. charge each the same tax per unit of pollution iii. mandate each utility to reduce pollution by the same amount, but allow them trade with each other such that total abatement is achieved.