Suppose there are two firms in the world with marginal costs of abatement given by: MC^ = X 4. MC® = 3X Each firm is emitting 3 tons of CO2 initially, for a total of 6 tons. Suppose the marginal benefit curve is vertical (a threshold effect) at X = 4. This implies X*=4. a) Suppose the government decides that the firms should split the burden, so each one will do 2 units of abatement. What is the total cost to firm A, firm B, and the two together? b) Apply the equimarginal principle. What is the cheapest way to reach X* (i.e. how much abatement do A and B do)?
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- This question asks you to find the socially optimal outcome. Suppose a social planner takes the demand function and cost functions as given, and can choose (i) the market price, (ii) the number of firms, and (iii) the quantity produced by each firm [the planner is free to choose any quantity, even if the firms would lose money]. The social planner’sgoal is to maximize the sum of consumer surplus and firms’ profits. To do this, the planner will take into account the two economic principles of efficiency, (i) Allocative efficiency which implies price=mc. (2) Efficiency in production, which means that the cost of production of the total market quantity should be minimized. Suppose the demand function is Q(p) = 40 – 5p. For each of the following cost functions, what market price, number of firms and quantity for each firm will the social planner choose?a) C(q) = 20 + 4qb) C(q) = 3 + q^2/3 + 3q.This question asks you to find the socially optimal outcome. Suppose a social planner takes the demand function and cost functions as given, and can choose (i) the market price, (ii) the number of firms, and (iii) the quantity produced by each firm [the planner is free to choose any quantity, even if the firms would lose money]. The social planner’sgoal is to maximize the sum of consumer surplus and firms’ profits. To do this, the planner will take into account the two economic principles of efficiency we discussed in class, (i) Allocative efficiency which implies price=mc. (2) Efficiency in production, which means that the cost of production of the total market quantity should be minimized. Suppose the demand function is Q(p) = 40 – 5p. For each of the followingcost functions, what market price, number of firms and quantity for each firm will the social planner choose?a)C(q) = 20 + 4qb) C(q) = 3 + q^2/3 + 3q.A4 1. Two chemical companies, A and B, operate in a small New England town. Every week A releases 40 gallons of dioxin into the town’s aquifer, while B releases 30 gallons during the same time frame. It would cost A $800 per gallon to clean up its production, while B can clean up its waste at a cost of $500 per gallon. After this issue is raised at a town hall meeting, the town’s residents vote to reduce total dioxin pollution to 20 gallons per week. a. What would be the total cost of pollution reduction if each company were limited to 10 gallons of waste per week? b. What would the total costs be if each company received 10 gallons worth of tradable pollution credits? 2. A wheat farmer and a cattle rancher occupy adjacent parcels of land. Every year the farmer builds a fence to keep the cattle out of his field, and every year the rancher tears the fence down so that the cattle can roam free. The farmer values the wheat that gets destroyed at $300, while the rancher values having a…
- Imagine a small town, in which only two residents, Tony and Jill, own wells that produce water for safe drinking. Each Saturday, Tony and Jill work together to decide how many gallons of water to pump, bring the water to town, and sell it at whatever price the market will bear. Meanwhile, suppose that it costs $1/gallon for Tony &Jill to pump & deliver water to the customer: i.e., the marginal cost, MC = $1. The weekly town demand schedule and total revenue schedule for water is reflected in the table below. Note: Price (P) is a function of the weekly market quantity (Q): i.e., P = 13 – 0.1 Q Total Marginal Total Marginal Cost Revenue Revenue Quantity (Q) Price Cost Profit (P) (TR) (MR) (TC) (MC) (TT) 13 N.A N.A 10 12 120 12 10 1 110 20 11 220 10 20 1 200 30 10 300 1 40 1 50 8 60 7 70 6 1 80 1 90 4 1 100 3 1 110 220 1 120 1 120 1 130 -12 130 1 -130 (1) Complete the above table by filling all blanks. (2) As long as Tony and Jill operate as a profit-maximizing monopoly, what will the…The concert promoters of a heavy metal band, WeR2Loud, know that there are two types of concert - goers: die - hard fans and casual fans. For a particular WeR2Loud concert, there are 1.000 die - hard fans who will pay $150 for a ticket and 500 casual fans who will pay $50 for a ticket. There are 1,500 seats available at the concert venue. Suppose the cost of putting on the concert is $50,000, which includes the cost of the band, lighting, security, etc. Refer to Scenario 15-6. How much additional profit can the concert promoters earn by charging each customer their willingness to pay relative to charging a flat price of $150 per ticket? Group of answer choices $25,000 $50,000 $ 75,000 $100,000You have recently been hired as the business manager for a small arthouse cinema in Japan. The cinema screens independent arthouse movies aswell as older independent movies. The rights to show these types of movies is negligible (assume the marginal cost equals zero). The business also has a loungethat serves drinks as well as small plates of food. The current business model is that the films are screened for free (movie tickets are free) and the business earns its revenue from sales in the lounge that occur before, during and after thescreening of the films. You have been hired to develop a new pricing strategy to improve profits Your first action was to commission an econometric study to estimate demand and demand characteristics. The study concluded there are two main types of customers having different demand. The study further concluded that the main observable characteristic between the two customer types is age. Note that ageis correlated with unobservable characteristics like…
- The following table shows how the marginal benefit enjoyed by John, Mary, Loren, and all other consumers of outdoor rock concerts varies with the number made available by a city government per summer. a) What would be the efficient number of concerts to produce if the marginal cost of production were $425 instead of $1,000? b) Suppose the marginal cost of producing rock concerts is only $250 per concert no matter how many are produced. Use the data to calculate the efficient number of concerts. c) If a Lindahl scheme is used to finance the concerts, what prices of admission should be charged to John, Loren, and Mary?Which of the following statements is correct? Select one: a.In models of network goods with positive externalities, no consumption is always an equilibrium. b. The equilibrium in the hotelling model when both firms have the same location is for the firms to set their prices equal to their (constant) marginal cost even if their marginal costs are different. c. If all firms start wiht the same techonology, under both minor and drastic innovations the inovator firm is only one firm producing after the innovation. d. The Schumpeter hypothesis establishes that competitive firms have higher capacity to produce R&D than monopolies.Suppose there are 100 farmers each with 10 acres that overlie a common groundwater aquifer. They all have identical farmland that is more productive if wells are used to pump the groundwater for irrigation. They all face a marginal cost of $10 per well. The average productivity (in $ of crop output) of the wells of the common aquifer is given by AP = 100 – W where W is the number of wells drilled into the aquifer. 1a. Assume farmers act on their own how many wells will be drilled and how much rent will the aquifer generate. A. 45; 2025 B. 90; 2025 C. 60; 1000 D. 90; 0 E. 45; 0 F. None of the above
- A large factory pumps its waste into a nearby lake. The lake is also used for recreation by 1,000 people. Let X be the amount of waste that the firm pumps into the lake. Let Yi be the number of hours per day that person i spends swimming and boating in the lake, and let Ci be the number of dollars that person i spends on consumption goods. If the firm pumps X units of waste into the lake, its profits will be; Π(X) = 1, 200X − 100X^2. (a) If there is no restrictions on pumping waste into the lake, how much waste will the firmpumps to maximize its profits?(b) check photo for part B please1. Suppose a logging company cuts trees from a local wood, but that nearby homeowners use the woods for hunting deer, and that the cutting of trees decreases the amount of deer the homeowners can catch. Demand for the timber is given by P= 100 – X, and the logging company's (one of many, so market outcome is P = MPC), marginal costs of cutting down the trees is MPC - 4X. Suppose that once we include the damage done to the homeowners, the marginal social costs are determined to be MSC = X + 10. a. Suppose the logging firm owns the woods and logs all they want. How much do they produce? b. What would be the total value of the damage done to the homeowners in this case? What is the efficient level of production? с. d. What is the maximum amount (total) the homeowners would be willing to pay the logging firm to decrease production to the efficient level. What is the minimum amount (total) the firm would be willing to accept to decrease production to the efficient level? c. f. What will be…Respond to the question with a concise and accurate answer, along with a clear explanation and step-by-step solution, or risk receiving a downvote. n the table below are the marginal abatement costs of two firms. Note that an entry in the table indicates the cost of reducing emissions by one unit from the previous level. For example, $104 is the additional abatement cost for Firm 1 to reduce its emissions from 3 tons to 2 tons, and $40 is the cost for Firm 2 to reduce its emissions from 7 tons to 6 tons. 1.In an unregulated environment each firm produces 10 tons of emissions (20 tons total). Using the table above, what emissions levels (i.e., emissions standards) would you assign if you wanted to limit aggregate emissions to 7 tons in a cost-effective manner? Firm 1’s emissions level ________________ Firm 2’s emissions level ________________ 2.Given the emissions levels from Question 1, calculate the total abatement cost for each firm? Firm 1’s total abatement cost ________________…