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Suppose there are two polluting sources in some region, and each generates 10 units of pollution....

Suppose there are two polluting sources in some region, and each generates 10 units of pollution. The following equations describe each polluters total and marginal abatement costs:

Polluter 1: TAC1 = 1.25(A1)2 , MAC1 = 2.5(A1)

Polluter 2: TAC2 = 0.3125(A2)2 , MAC2= 0.625(A1)

a. Suppose the total abatement level (A1 + A2) standard is set to 10 units of pollution. Find the cost-effective abatement levels to reach of this standard.

b. If there is a uniform standard that each firm must abate 5 units, what is the extra money spent on total abatement costs (TAC1+ TAC2) compared to the cost-effective abatement level from (a)?

c. Suppose the government implements a tax of $5 per unit of pollution. Is this a cost-effective way to meet the target of 10 units of total pollution? Explain.

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