Calculate the amount that each source should emit

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Reference no: EM133429086

Suppose there are two sources of emissions in the economy. The marginal abatement cost of source 1 is given by MAC1 = 100 - 10 E1. The marginal abatement cost of source 2 is given by MAC2 = 50 - 10 E2.

a. Suppose the regulator wishes to restrict aggregate emissions to 10 units, that is, E1+E2 = 10. Calculate the amount that each source should emit, E1 and E 2, in order for the aggregate emissions of 10 to be reached in the most cost-effective manner possible.

b. Suppose the regulator uses an emission tax. Calculate the per unit emission tax that the regulator should implement such that the sources emit E 1 and E 2 as calculated in part (a).

c. Briefly describe two limitations of using emission standards and two limitations of using emission taxes.

Reference no: EM133429086

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