Suppose marginal damages due to industrial chlorine emissions e into a river system are defined by the equation MD = e. Assume that marginal abatement costs also are linear in the emission level: 1200 – e/2 for e<2400 MC = otherwise (a) Calculate the pollution level in the absence of any regulation. (b) Calculate the optimal level of pollution assuming it can be obtained costlessly. Now suppose there are transactions costs of altering pollution output equal to T = 500,000. Does the assignment of property rights now matter for efficiency? What is the optimal level of pollution taking account of the transactions costs? (c) Now suppose the marginal damage of chlorine release is e/4 instead of e. If the transactions and negotiation costs are as in (iii), what now would be the optimal level of pollution taking account of the transactions and negotiation costs? (d)

Consider two firms with the following marginal abatement costs (MAC) as a function of emissions (E): MAC_1 = 12-2E_1 MAC_2=9-E_2, and assume marginal external damages (MED) from aggregate emissions from the two firms (E_Agg) is: MED = E_Agg. Total external damages at the socially efficient level of aggregate emissions is Answer: 1

Please drag and drop the markers 1 through 5 below to denote the appropriate position on the diagram that answers the question. a) Show with marker 1 the efficient level of marginal abatement costs. b) Show with marker 2 the marginal abatement costs if each produce must reduce pollution to 7.5 units. c) Denote with marker 3 the area that measures total abatement costs for each polluter. d) Show with marker 4 the marginal abatement costs if sources 1 and 2 merged and were constrained to a maximum total emissions of 15 units. e) Show with marker 5 the total abatement costs if both sources merged and were constrained to a maximum total emissions of 15 units. Marginal Cost (in dollars) MC MC, Quantity of Emissions Reduced A Source 1 10 5 4 13 14 15 15 14 13 12 11 10 8 O Source 2 5

Find Pure Strategy Nash equilibirum then use following values for emissions.

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two types of consumers( workers an retirees) share a community with a polluting cheese factory. the polution is nonrival and nonexcludable. the total damage to workers is p2 where p is the amount of pollution and the total damage to retirees is 3p2   . thus marginal damage to workers is 2p and marginal damage to retirees is 6p. according to an anlaysis by consulting engineers, the cheese factory saves 20p-p2 by pollluting p, for a marginal savings of 20-2p.  a.Find the aggregate(including both types of sonsumers) marginal damage for the public bad.  b..graph the marginal savings and aggregate marginal damage curves with pollution on the horizontal axis.  c. how much will the cheese factory pollute in the abscence of any regulation or bargaining? what is the societys optimal level of pollution? d. starting from the uncontrolled level of pollution calculated in part(c), find the marginal willingness to pay for pollution abatment, A, for each consumer class. (abatment is the reduction in…

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,…

Consider a firm that emits pollution into the air. Suppose that the marginal damage costs associated with the emissions are given by MDC -15+ 4 c, where e is the quantity of the emissions. The firm's marginal costs of abatement are given by (a) (b) 390 (c) MAC 1200 - 20 c. Determine the quantity of emissions that the firm would discharge in the absence of government policy. Determine the socially efficient level of emissions. Calculate the total costs to society for both a and b and draw a diagram illustrating these costs.

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.