Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN: 9781305506381
Author: James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher: Cengage Learning
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Chapter 17, Problem 2.4CE
To determine

The better option from a) an optimal carbon tax or b) carbon trading.

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The MD and MAC curves below represent damage and abatement cost functions for a firm liable for damages caused by its emissions. Suppose the firm cleans up its emissions so as to minimize the sum of its abatement cost and compensation payment. What would be its total cost? Copyrighted material. Not to be shared. $15 MAC 10 25 MD A Emissions (tonnes/month)
There is a company that emits a moderate amount of fossil fuel emissions. It would cost them 10 dollars to reduce emissions by 1 tonne, an additional 15 dollars to reduce emissions by a second tonne, an additional 25 dollars to reduce emissions by a third tonne, an additional 30 dollars to reduce emissions by a fourth tonne, and an additional 100 dollars to reduce emissions for a fifth tonne. If the price for a 1 tonne of emissions in a cap-and-trade program is 25 dollars, how many tonnes of emissions is the company likely to reduce?   a. one tonne b. two tonnes c. three tonnes d. four tonnes c. 5 tonnes
A firm has a marginal emissions benefit of 100-0.5*E in each of 2 years, where E measures emissions in tons. The marginal cost of emissions to society is 75/ton. The discount rate is 10% and the marginal cost of emissions also grows at 10% per year. The government decides to give the firm permits to emit 50 tons of emissions per year, but allows the firm to "bank" or "borrow" permits across the two years so that this effectively acts as a 100 ton cap on emissions over 2 years. How much will the firm emit in each year? If all firms are identical to the one you analyze here, is the government issuing too many or too few emission permits relative to the efficient level? How do you know?
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