Marginal abatement costs, Initially, two steel firms are

Marginal abatement costs

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Reference no: EM13837151

Initially, two steel firms are each releasing 100 units of pollution, for a total of 200 units. The government wants to reduce emissions by 40%. The steel firms have the following marginal abatement costs (MAC):

MAC(1)=3(A1)

MAC(2)=5(A2)

where A is units of abatement.

If Pigou tax approach is used, what would be the cost to each of the two firms? How much would the government receive?

Reference no: EM13837151

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