QUESTION ONETwo firms are ordered by the Government to reduce their pollution levels. Firm A'smarginal costs associated with pollution reduction are MC = 20 + 4Q. Firm B's marginalcosts associated with pollution reduction are MC = 10 + 8Q. The marginal benefit ofpollution reduction is MB = 400-4Q.a) What is the socially optimal level of each firm's pollution reduction?b) Compare the social efficiency of the three possible outcomes:(1) require both firms to reduce pollution by the same amount;(2) charge a common tax per unit of pollution;(10 marks)(3) require both firms to reduce pollution by the same amount but allow pollutionpermits to be bought and sold.(15 marks)[Total = 25 marks]17°C Partly cloudy

To find the socially optimal level of pollution reduction for each firm, we need to equate the…

Answered: QUESTION ONE Two firms are ordered by…

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter19: Externalities And Public Goods

Section: Chapter Questions

Problem 19.9P

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Two firms are ordered by the federal government to reduce their pollution levels. Firm A’s marginal costs associated with pollution reduction are MC = 150 + 3Q. Firm B’s marginal costs associated with pollution reduction is MC = 9Q. The marginal benefit of pollution reduction is MB = 250-4Q. A.What is the socially optimal level of each firm’s pollution reduction? B. Compare the social efficiency of three possible outcomes: Require all firms to reduce pollution by the same amount (half of the total calculated in part a); Charge a common tax per unit of pollution; Require all firms to reduce pollution by the same amount, but allow pollution permits to be bought and sold
QUESTION 6 Firms A and B each produce 80 units of pollution. The federal government wants to reduce pollution levels. The marginal costs associated with pollution reduction are MCA = 50 + 3QA for firm A and MCg = 20 + 6QB for firm B, where QA and QB are the quantities of pollution reduced by each firm. Society's marginal benefit from pollution reduction is given by MB = 590- 3Qtot where Qtot is the total reduction in pollution. The socially optimal level of firm A's pollution reduction is . The socially optimal level of firm B's pollution reduction is Hint: Type integers.
QUESTION 5 Firms A and B each produce 80 units of pollution. The federal government wants to reduce pollution levels. The marginal costs associated with pollution reduction are MCA = 50 + 3QA for firm A and MCg = 20 + 6QB for firm B, where QA and QB are the quantities of pollution reduced by each firm. Society's marginal benefit from pollution reduction is given by MB = 590- 3Qtot where Qtot is the total reduction in pollution. The social optimum requires MB = MCA = MCg. Setting MCA =MCg and solving for QA in terms of QB, we have QA = QB - Setting MCB = MB, plugging in for QA in terms of QB, and solving for QB, 20 + 6QB = 590 - 3Qtot = 590 - 3(QA + QB) = QB. Hint: Type integers.
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