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Two individuals are choosing their CO2 abatement levels in an effort to reduce the effects of climate change. The marginal benefits of abatement for individual
Two individuals are choosing their CO2 abatement levels in an effort to reduce the effects of climate change. The marginal benefits of abatement for individual 1 and individual 2 are given by MB1 = 25 - A and MB2 = 100 - 4A2, respectively. The marginal costs of abatement are constant and are given by MC = 20. a. Suppose society consists only of these two individuals. Derive the marginal benefits of abatement function in this society (MB). (1 pt) b. Derive the socially optimal level of abatement (A). Calculate the corresponding social welfare SWA-(2 pt) c. Now suppose only individual 1 provides abatement. Derive the optimal level of abatement (A) this individual will choose. Calculate the corresponding social welfare SWA: (2 pt) Two individuals are choosing their CO2 abatement levels in an effort to reduce the effects of climate change. The marginal benefits of abatement for individual 1 and individual 2 are given by MB1 = 25 - A and MB2 = 100 - 4A2, respectively. The marginal costs of abatement are constant and are given by MC = 20. a. Suppose society consists only of these two individuals. Derive the marginal benefits of abatement function in this society (MB). (1 pt) b. Derive the socially optimal level of abatement (A). Calculate the corresponding social welfare SWA-(2 pt) c. Now suppose only individual 1 provides abatement. Derive the optimal level of abatement (A) this individual will choose. Calculate the corresponding social welfare SWA: (2 pt)
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