Suppose you have a 2 polluting sources in a region. With the objective to mitiga
ID: 1167819 • Letter: S
Question
Suppose you have a 2 polluting sources in a region. With the objective to mitigate pollution the government sets emissions limits as 10 units per company (Ast). As a market oriented policy, the government imposes an emission charge of $5.0 per unit of tax. The following functions are as follows.
Polluter 1.- MAC1 = 3.59(A1)
Polluter 2.- MAC2 = 0.825(A2)
Total tax per polluter = t(Ast – Ao)
Where Ao = Actual units abated.
The graphs below are meant to help you solve the problem:
a) Determine how many units are to be abated per polluter given this market incentive. Take into account that MAC =MT.
b) Determine total tax per polluter.
c) How much each polluter have to pay overall (tax plus cost)?.
d) What are the savings per polluter if we compare the market incentive solution to no incentive at all (No tax)
Explanation / Answer
MAC = MT
MAC1 = MT implies
3.59 x A1 = 5
A1 = 5 / 3.59 = 1.39
MAC2 = MT implies
0.825 x A2 = 5
A2 = 5 / 0.825 = 6.06
(b)
Tax for polluter 1 = $5 x (10 - 1.39) = $43.05
Tax for polluter 2 = $5 x (10 - 6.06) = $19.70
(c) & (d):
The question does not provide any other cost component than the tax. But the No-tax cost structure is required to calculate total cost, as well as savings per polluter. Please provide this information in the Comment section, if data is available I'll give the solution in my comment.
Please also mention the full forms of MAC & Ast!
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