08 Jul 2020
- In the absence of regulation, firm 1 would emit 15 and firm 2 would emit 20. The firms have the following marginal control costs where q1 and q2 are the amount of emissions reduced by each firm.
MC1=0.4q1
MC2=0.5q2 - The EPA has determined that emissions should be reduced by 9. What tax level would achieve this goal? How much abatement would be done by each firm?
- If instead an emission permit system was established, how much would each firm spend on permits if 26 emission allowances were auctioned off? How much would they spend in total?
- If the 26 permits were split evenly between the 2 firms, how much would each firm ultimately spend? How much would they spend in total?