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29 Oct 2020

8. In equilibrium, the price of marketable pollution permit in a competitive permit market


(a) is constrained to the amount the government first charged for it.
(b) equals the marginal cost of abatement for all firms.
(c) equals the marginal cost of abatement for the firm with the highest cost, and exceeds the marginal cost of abatement of other firms.
(d) equals the marginal cost of abatement for the firm with the lowest cost, and is less than the marginal cost of abatement of other firms.

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29 Oct 2020

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Related questions

Assume two power plants release Sulfur Dioxide (SO2) in Athens, GA. A1 is the abatement in firm1 and A2 is the abatement in firm 2. The total costs of abatement functions are given as,

TC1 = 1000 + 2.5(A1)^2

TC2 = 500 + 1.5 (A2)^2

Suppose the goal is that 16 units of SO2 (total abatement) must be abated in total.

1)Please calculate the total costs and marginal costs of abatement for both firms under a uniform allocation approach. Uniform allocation approach means each firm has to abate the same amount.

2)Now the local government is launching a voluntary emissions trading system, which allows polluters to achieve cost-effectiveness and meet the abatement goal. Please find the cost effective allocation of the abatements in the permit trading market. What are the total costs and the marginal costs for each firm?

Please answer True or False:

1. By definition, the marginal abatement cost (MAC) curve shows the change in costs associated with higher levels of abatement, using the most widely available technology

2. The command-and-control approach to environmental policy uses rules, emissions limits, and various incentive-based policy instruments.

3. According to the cost-effectiveness criterion, all polluting sources would abate pollution to the point where their individual marginal abatement cost (MAC) levels were equal.

4. The condition for an efficient bargaining under the Coase Theorem is that the marginal willingness to accept is greater than the marginal willingness to pay.

5. An example of a location choice policy is urban planning rules.

6. Command and Control instruments can intervene at any stage of production.

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