Postregulation levels of rubber output-profits for each firm

Assignment Help Business Economics

Reference no: EM13887085

The Fireyear and Goodstone Rubber Companies are two firms located in the rubber capital of the world. These factories produce finished rubber and sell that rubber into a highly competitive world market at the fixed price of £60 per ton. The process of producing a ton of rubber also results in a ton of air pollution that affects the rubber capital of the world. This 1:1 relationship between rubber output and pollution is fixed and immutable at both lactones. Consider the following information regarding the costs (in £) of producing rubber at the two factories (Qp and QG): Fireyear: Costs: 300 + 2 QF2 Marginal costs: 4QF Goodstone: Costs: 500 + QG2 Marginal costs: 2QG Total pollution emissions generated are EF + EG = QF + QG . Marginal damage from pollution is equal to £12 per ton of pollution.

a. In the absence of regulation, how much rubber would be produced by each firm? What is the profit for each firm?

b. The local government decides to impose a Pigovian tax on pollution in the community. What is the proper amount of such a tax per unit of emissions? What are the postregulation levels of rubber output and profits for each firm?

c. Suppose instead of the emission tax, the government observes the outcome in part (a) and decides to offer a subsidy to each firm for each unit of pollution abated. What is the efficient per unit amount of such a subsidy? Again calculate the levels of output and profit for each firm.

d. Compare the output and profits for the two firms in parts (a) through (c). Comment on the differences, if any, and the possibility of one or both of the firms dropping out of the market.

Reference no: EM13887085

Questions Cloud

Moral hazards affect financial and labor markets : How do the concepts of adverse selection and moral hazards affect financial and labor markets? Which of these effects is the most significant? Why? What are the most significant effects of these concepts on organizations and individuals? Why?

Texas-mexico border and broadcast the video over web : Texas governor Rick Perry promised to put hundreds of cameras on the Texas-Mexico border and broadcast the video over the Web so anyone, anywhere could become a border patroller, helping root out border crime and illegal crossings. if the 200 cameras..

Most important attributes of successful organizations : What are the three most important attributes of successful organizations? Why? Is it more likely for an organization to display these attributes (to be successful) in an oligopoly than in monopolistic competition? Why or why not?

Determine the objective coefficient ranges : Refer to the sensitivity information for the Kelson Sporting Equipment problem in Figure 8.14 (see Problem 5).

Postregulation levels of rubber output-profits for each firm : The Fireyear and Goodstone Rubber Companies are two firms located in the rubber capital of the world. These factories produce finished rubber and sell that rubber into a highly competitive world market at the fixed price of £60 per ton. The local gov..

Annual return be reduced if the u.s. oil maximum : Refer to Figure 8.15, which shows the sensitivity report for Problem 7.

What are the limitations of these graphical representations : Most firms use graphs to present profit and loss information to key stakeholders. What are the limitations of these graphical representations? What ethical concerns must be considered in the preparation and presentation of financial graphs? What shou..

Relating to the impact of free trade on wages and employment : The following is a list of statements relating to the impact of free trade on wages and employment. Indicate whether the statement is true or false by dragging and dropping the appropriate term into the boxes provided. Free trade does not generally b..

Important role in international trade : The World Trade Organization (WTO) has an important role in international trade. From the list below, select all statements about the WTO that are true. The WTO encourages dumping behavior to lower costs for consumers. The WTO assesses complaints of ..

User Account

All Pages