What is the total abatement cost incurred

Reference no: EM133205153

Assignment:

Suppose that the Marginal Abatement Cost function and the Marginal Damage function for an industry are given as follows:

MAC = 80 - 0.2e

MD = 0.3e

For simplicity here, we are assuming that they are linear. Suppose further that the emissions of the pollutant in question are governed by a Cap and Trade program.

a. In order for the program to be efficient, how many pollution permits would have to be issued? Explain.

b. What would be the expected market price of a permit if the efficient number of permits is issued? Explain.

c. What is total cost of the permits used by firms across the industry? Explain.

d. What is the total abatement cost incurred? Explain.

e. How would the total cost (cost of pollution permits plus abatement cost) to firms compare to the total cost to firms in the case when an efficient emissions tax is imposed? Is it higher? Is it lower? If so, why? Explain.

Reference no: EM133205153

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