Reference no: EM132543308

Suppose the marginal costs of emissions abatement for two polluting firms are as follows:

Producer 1: MC1 = 10Q1

Producer 2: MC2 = 50Q2

Where MC1 and MC2 are the marginal control costs and Q1 and Q2 are the volumes of emissions reduced by Producers 1 and 2 respectively. With no controls at all, each firm emits 100 units totaling 200 units.

• Compute the cost-effective allocation of control responsibility if a total reduction of 50 emission units is required (i.e. Q1 + Q2 = 50).
• If the Government wants to charge an emission tax, what per unit tax should they impose?
• How much total revenue would the Government collect from the tax on emissions in section b?
• What other policy instrument can achieve a cost-effective reduction in emissions? Explain.