25.) Let T equal tons of sulfur dioxide (SO 2 ) emissions. Suppose two power pla

Question

25.) Let T equal tons of sulfur dioxide (SO2) emissions. Suppose two power plants have marginal abatement costs given by MAC1=20-T1 and MAC2=10-T2. Suppose that emitting SO2 costs the firms nothing. T1 represents emissions by firm 1; T2 represents emissions by firm 2.

a)How much SO2 does each firm emit when there is no policy for emissions?

b)If the government orders both firms to reduce emissions by 50%, is this a cost effective policy? Show your answer is correct by calculating values.

c)What is a cost effective policy (calculate values)?

Explanation / Answer

Given: - two firms

               T is the tones of SO2 production

Marginal Abatement cost of firm 1 :- MAC1=20-T1

Marginal Abatement cost of firm 2 :- MAC2=10-T2

The total emission of both the firms can be:- MAC1=MAC2

20-T1=10-T2

T1 = T2 + 10

T2 = T1 – 10

Which means that T1=T2

Thus, both the firms emit equal SO2.

Related Questions

Navigate

• Browse (All)
• Browse 2
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.