Calculate the total costs and marginal costs of abatement

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Reference no: EM13742863

Assume two power plants release Sulfur Dioxide (SO2) in Athens, GA. A1 is the abatement in firm1 and A2 is the abatement in firm 2. The total costs of abatement functions are given as,

TC1 = 1000 + 2.5(A1)^2

TC2 = 500 + 1.5 (A2)^2

Suppose the goal is that 16 units of SO2 (total abatement) must be abated in total.

1) Please calculate the total costs and marginal costs of abatement for both firms under a uniform allocation approach. Uniform allocation approach means each firm has to abate the same amount.

2) Now the local government is launching a voluntary emissions trading system, which allows polluters to achieve cost-effectiveness and meet the abatement goal. Please find the cost effective allocation of the abatements in the permit trading market. What are the total costs and the marginal costs for each firm?

Reference no: EM13742863

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