What is the uncontrolled level of total emissions

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Questions: There are two polluting firms with marginal abatement cost functions MAC1 = 200 - e1 and MAC2 = 200 - 2e2, where e1 and e2 represent the quantity of pollution emissions per month from firms 1 and 2. Answer the following questions and use a carefully drawn graph to complement your answers.

a) What is the uncontrolled level of total emissions?

b) Suppose the environmental regulator has decided that total emissions must be reduced to a level of 150 units per month. It adopts a policy of requiring each source to reduce its emissions to 75 units per month. Evaluate this policy using the criterion of economic efficiency.

c) Suppose instead that the environmental regulator has decided to use an emissions tax to control emissions to 150 units per month. What tax rate (per unit of emissions) will achieve this goal? Evaluate this policy using the criterion of economic efficiency.

Reference no: EM133405095

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