Acid rain pollution is produced from two sources, a power plant and a smelter. Studies show that the marginal cost of reducing acid pollution at the power plant is given by the function MC₁ (A1) = 10+ A1 where A₁ is the units of acid rain reduction (or “abatement") at the power plant; and the marginal cost at the smelter is MC2 (A2)=20+ A2. Suppose that the initial level of pollution was 120 units, but the government has limited pollution to 70 units by selling pollution permits to the two polluters - so that the total amount of abatement is 50 units. Calculate the total demand for permits to pollute at any permit price p per unit of acid rain. If the permit market is competitive, what is the equilibrium price of a permit? How many permits are bought by the power plant, and how many by the smelter? Draw a graph illustrating your answer.

Consider an industry with two firms that emit a uniformly mixed air pollutant (e.g., carbon dioxide). The marginal abatement cost functions for Firm 1 and Firm 2 are: MAC1 = 100 - e1 MAC2 = 100 - 4e2 Aggregate emissions for the industry are denoted as E = e1 + e2. 1. In an unregulated environment how many units of emissions does each firm emit?             Firm 1’s unregulated level of emissions ____________             Firm 2’s unregulated level of emissions ____________             Total unregulated level of emissions ______________ Suppose a regulator has a goal of reducing the total level of emissions from the amount from the amount you answered in [1] to 25 units. The regulator would like to achieve the goal of 25 units of total emissions in a cost-effective way. To do so it issues 25 permits, 10 are given to Firm 1 and 15 are given to Firm 2. A firm can only emit a unit of pollution if they have a permit for that unit, otherwise they must abate. After the permits are allocated,…

Externalities can not be positive. That is, there can be a third party cost associated with the production or consumption of a good or service, but there cannot be a benefit.  A) True B) False

Firms in a polluting industry can be classified in two groups: newer firms with a cleaner technology that can abate pollution at a lower marginal cost MCLA = (1/2)aL and older firms with dirtier MCHA = aH, where ai is the level of abatement undertaken by firms of type i = L, H. The social marginal benefit of abating pollution from this particular industry is MBA= 120 - A, where A is the aggregate level of abatement in that industry. To design an efficient emissions standard, the government needs to determine which is the efficient abatement allocation (aL, aH). In order to do this, obtain a cost effective abatement allocation (aL, aH)that provides an aggregate abatement level A = aL + aH, and then proceed to determine the efficient level A (Hint: You should obtain that MCA = A=3)

Firms in a polluting industry can be classified in two groups: newer firms with a cleaner technology that can abate pollution at a lower marginal cost MCLA = (1/2)aL and older firms with dirtier MCHA = aH, where ai is the level of abatement undertaken by firms of type i = L, H. The social marginal benefit of abating pollution from this particular industry is MBA= 120 - A, where A is the aggregate level of abatement in that industry. Suppose that in order to avoid the costly obtention of disaggregate information about individual firms' costs, the government just implements a uniform standard aui  = A* / 2. Is this allocation efficient? If not, what is the deadweight loss?

No hand written solution Afirm has an industrial plant that emits pollutants into a town’s lake. The plant’s marginal abatement function is MAC= 200 – 0.5E and damages caused by its emissions are given by MD = 2E where emissions are in kg. per day. What is the socially efficient level of emissions from this plant? Illustrate this in a graph.   As an incentive to reduce emissions to the socially efficient level, government offers to pay the firm for each kg. of emissions it abates per day from this plant.   What subsidy per kg. should the government offer? If the plant abates to the socially efficient level of emissions, what total subsidy payment would the firm receive? Identify the area in your graph. How much better or worse off would the firm be compared to if it did no abating? Identify the area in your graph. What would be the net benefit to society if we pay the firm to reduce the plant’s emissions to the socially efficient level? Identify this area in your graph.

Consider two firms with the following marginal abatement costs (MAC) as a function of emissions (E): MAC_1 = 12-.5E_1 MAC_2 = 12-E_2, and assume marginal external damages (MED) from the aggregate emissions of both firms (E_Agg = E_1 + E_2) is: MED = (1/3)E_Agg. To achieve the socially efficient level of aggregate emissions (E*_Agg), the government institutes a per unit tax on emissions. The per- unit tax on emissions is $ Answer:

Consider a river found in the city of Philadelphia, and then answer the questions that follow. The city has a resort whose visitors use the river for recreation. The city also has a tannery that dumps industrial waste into the river. This pollutes the river and makes it a less desirable vacation destination. That is, the tannery's waste decreases the resort's economic profit. Suppose that the tannery could use a different production method that involves recycling water. This would reduce the pollution in the river to levels safe for recreation, and the resort would no longer be affected. If the tannery uses the recycling method, then the tannery's economic profit is $1,500 per week, and the resort's economic profit is $1,800 per week. If the tannery does not use the recycling method, then the tannery's economic profit is $2,000 per week, and the resort's economic profit is $1,000 per week. These figures are summarized in the following table. Complete the following table by computing…

See below for three parts of Scenario 2 Scenario  2A. There are three firms, A;B; and C that produce electricity. The first two firms have the same per-megawatt cost of production equal to $2, while firm C has a per-megawatt cost of $1. The firms differ, however, in their pollution. Firms A;B; and C produce respectively 1, 2, and 3 cubic feet of carbon monoxide per megawatt produced. A cubic foot of carbon monoxide pollutes the environment, and has a social cost of $2.5. The demand for electricity is represented by the inverse demand function P (Mw) =100 - Mw, where Mw represents the megawatts consumed by the public. Suppose firms are not held accountable for the pollution they produce. Scenario 2B. Suppose now that the government can measure the amount of pollution issued by each firm, and suppose that the government constrains each firm to emit no more than 9 cubic feet of carbon monoxide. Scenario 2C Suppose that government allows firms to trade their permits to emit carbon…

Consider an industry with two firms that emit a uniformly mixed air pollutant (e.g., carbon dioxide). The marginal abatement cost functions for Firm 1 and Firm 2 are: MAC1 = 100 - e1 MAC2 = 100 - 4e2 Aggregate emissions for the industry are denoted as E = e1 + e2. [1] In an unregulated environment how many units of emissions does each firm emit?             Firm 1’s unregulated level of emissions ____________             Firm 2’s unregulated level of emissions ____________             Total unregulated level of emissions ______________