EC238 Lecture : Practice%20Problems%20week%20of%20Jan%2020-27.pdf
Document Summary
Practice problems for chapter 3, 4 and 5: Suppose marginal damages due to industrial chlorine emissions into a river system are defined by the equation. Md = 2e where e is the measure of pollution. Marginal abatement costs are defined by the equation. Mac = 1000 - e (i) calculate the pollution level in the absence of any pollution. If you were a policy maker and were asked to set a target for emissions reduction, how large a reduction would you guess ought to be pursued? (ii) calculate the optimal level of pollution. Now suppose that scientific evidence arises showing that the chlorine release is twice as damaging as previously thought: so the md curve is actually. Suppose two firms, 1 and 2, have the following marginal abatement cost curves: Mac1 = 100 - 3e1 mac2 = 50 - 2e2. Find the least-cost allocation of emissions between the two firms that controls total emissions to.
