Pages 20 Two cheese plants are currently emitting 20 tons of pollution each. The marginal abatement costs for Plant 1 and Plant 2 are given by:

Pages 20

Two cheese plants are currently emitting 20 tons of pollution each. The marginal abatement costs for Plant 1 and Plant 2 are given by:

MAC1 = 200Q1 and MAC2 = 100Q2 where Qi (i = 1, 2) represents the number of tons of pollution reduction.

a. Draw a diagram illustrating the marginal abatement cost curves for Plants 1 and 2.

Pages 20b. If a total reduction of 21 units of emissions is necessary, what will be the cost- effective allocation of control responsibility for each plant? Also, use your diagram in part (a) to explain what the cost-effective pollution control policy is.

Pages 20c. Suppose that a uniform emission standard is chosen to control the emissions. Is this policy cost-effective? Explain.

Pages 20d. Discuss whether you agree or disagree with the following statement:

“When the control authority does not have knowledge of the marginal damage curve, the control authority can still calculate the required rate of tax to achieve a target level that the control authority wishes.”

 
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