Just need help with part d and e. Not a, b, or c. Thank you. Suppose there areplants that release carbon dioxide emissions (CO₂) into air attheir current production levels. Each firm currently emits 75 tons per year, thus emitting 150tons total. Local authorities have decided they would like to reduce annual CO₂ pollution to100 tons per year (thus a 50 ton reduction).The power plants have different marginal abatement costs given by the following equations:MAC₁ = 2a11MAC2 = 02whereby a₁ and a2 correspond to the marginal abatement quantities chosen by firms 1 and 2respectively.(a) Plot the marginal abatement functions for each firm on separate graphs.(b) Suppose the local authorities decide to impose a uniform reduction of pollution by bothpower plants. In order to achieve the 50 unit reduction under this plan, both plants mustreduce their emissions (abate pollution) by 25 units each. Find how much this would costeach firm and find the total cost of abatement under this uniform reduction policy.(c) Suppose the regulator passed a carbon tax equal to $15 per ton. How much abatementwould firm 1 choose? Firm 2? How much would each firm spend on abatement and howmuch would each firm pay in taxes? Is this tax too high or too low to achieve the desired50 ton total reduction?(d) Find the optimal tax per ton that achieves the desired total reduction. How much less dofirms spend to abate pollution under this tax than they did in part (b) above? Ignore thetax expenditure.(e) Intuitively, explain why the total abatement cost across both firms is lower in part (d)than in part (b).1

When firms have to reduce pollution emissions, they bear a certain cost for that. This is because,…

(d) Find the optimal tax per ton that achieves the desired total reduction. How much less do firms spend to abate pollution under this tax than they did in part (b) above? Ignore the tax expenditure. (e) Intuitively, explain why the total abatement cost across both firms is lower in part (d) than in part (b).

(d) Find the optimal tax per ton that achieves the desired total reduction. How much less do firms spend to abate pollution under this tax than they did in part (b) above? Ignore the tax expenditure. (e) Intuitively, explain why the total abatement cost across both firms is lower in part (d) than in part (b).

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter17: Long-term Investment Analysis

Section: Chapter Questions

Problem 3.2CE: Why has coal dominated as a fuel source for 24/7/365 electricity generation for so many decades?

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