Two power plants are currently emitting 1000 units of pollution each (for a total of 2000 units), and have abatement costs as given below:

Plant 1: MAC₁ = 35A₁ TAC₁ = 17.5A₁²

Plant 2: MAC₂ = 45A₂ TAC₂ = 22.5A₂²

------ where A₁, A₂ denotes the number of units of abatement. ------ Please note that you should express all costs in dollars ($).

SHOW YOUR WORK for the calculations below.

Analyze the effects of each of the following policies (considered separately) in terms of:

Each plant's marginal abatement cost (MAC), total abatement cost (TAC), and total compliance cost (if different from TAC).

Overall (for the sum of the two plants) total abatement cost and total compliance cost.

Each plant's pollution abatement amount, and overall (for the sum of the two plants) pollution abatement amount.

a. Policy - a uniform emissions standard requiring each plant to limit emissions to 200 units. SHOW YOUR WORK FOR ALL OF THE CALCULATIONS, then answer the question: Which plant has higher TAC?

b. Policy - a uniform emissions charge of $31,500 per unit emitted. SHOW YOUR WORK FOR ALL OF THE CALCULATIONS, then answer the questions: Which plant has a larger amount of abatement? Which plant pays more taxes?

c. Which policy reduces overall TAC? Demonstrate that this policy follows the Equimarginal Principle.