Question
The government wants to reduce water pollution (E) from a tannery. Currently, such abatement is very expensive, but engineers believe that a new cheaper technology
The government wants to reduce water pollution (E) from a tannery. Currently, such abatement is very expensive, but engineers believe that a new cheaper technology is feasible.
The current marginal abatement cost curve (MAC1) and potentially-lower MAC curve (MAC2) for a single typical source (with current emission levels at E0= 200) are:
MAC1= 200 - E
MAC2= 100 - E/2
Suppose the government sets an emission standard at E* = 100. What is the maximum the firm would be willing to pay to develop the new technology? (Assume that there is no ratchet effect)
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