Reference no: EM131293305

Suppose that there are three firms in a region that are producing a common emission. The marginalabatement cost (MAC) for each firm is given by:

MAC1 = 240 - 2E1 MAC2 = 192 - 1.6E2 MAC3 = 320 - 2.67E3The marginal damage function for the region is given asMD = (4/3)ET{where ET = E1 + E2 +E3}

a) Find the aggregate MAC for the region.

b) Find the socially optimal level of Emissions for the region

c) Suppose that the government imposes a Uniform Standard on the three firms that achieves the sociallyoptimal level. What will be each firm's MAC and TAC?

d) Now, instead of a standard, the government uses an Emission Tax. Find the tax rate that achieves thesocially optimal level of emissions. Determine each firms emissions, TAC, and Tax Bill. Compare thetotal cost to each firm from a tax policy to your answer in (c).

e) Suppose the government decides to use a Marketable Permit program. If permits are initially given toeach firm in the amount equal to the uniform standard, then:

a. Determine the final allocation of permits (after trading)

b. What is the net cost to each firm (TAC plus/minus permit revenues/costs)

c. Compare each firm's total cost under permit system to that of the uniform standard and the emission tax.