Suppose that the Marginal Abatement Cost function and the Marginal Damage function for an industry are...

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Suppose that the Marginal Abatement Cost function and the Marginal Damage function for an industry are...

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

MAC = 48 – 0.4e MD = 0.35e

For simplicity here, we are assuming that they are linear.

a. Graph the MAC and MD curves for this industry. Make sure you are marking out any and all relevant axis intercepts.

b. If this industry is completely unregulated, what is the level of emissions? How did you get this number?

c. What is the threshold level of emissions of this industry? How did you get this number? d. What is the socially efficient level of emissions? How did you find this number?

business economics

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Answer 1

Answer #1

At emission level e*, the social cost is minimised.

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