Ec383 - Problem set 5
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Ec383 - Problem set 5
1. ModiÖed version of the least-cost theorem example in chap-
ter 6 of Perman et al:
Suppose an EPA wishes to reduce the total emission of a particular pol- lutant from the current level of M = 200 to a target level M* = 50.
Emissions arise from the activities of two Örms, A and B. Each Örm currently emits 100 units: MA = 100; MB = 100.
Let the total abatement cost functions of the two Örms be
CA = 100 + 2ZA(2)
CB = 100 + 3ZB(2)
a. Apply the least-cost theorem to identify the least-cost level of abate- ment for Örm A and Örm B, respectively.
b. Calculate the total abatement costs in the least cost solution. Compare
it to the total abatement costs for the case where both Örms are asked to
abate an equal amount. Which one is higher? Provide an argument to explain why in this case equal abatement does not minimize abatement costs.
2023-01-31