Scribd
Upload
2 views2 pages

In-Class Week Three Exercise

The document outlines an in-class exercise for a course on Environmental and Resource Economics, focusing on cost-effective pollution abatement between two firms. It includes tasks such as plotting marginal cost functions, computing costs under different abatement allocations, and comparing total costs. The goal is to determine the most efficient allocation of pollution abatement to minimize costs for both firms.

Uploaded by

su hyun Jung
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
2 views2 pages

In-Class Week Three Exercise

The document outlines an in-class exercise for a course on Environmental and Resource Economics, focusing on cost-effective pollution abatement between two firms. It includes tasks such as plotting marginal cost functions, computing costs under different abatement allocations, and comparing total costs. The goal is to determine the most efficient allocation of pollution abatement to minimize costs for both firms.

Uploaded by

su hyun Jung
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

1/30/20

AGRICULTURE AND RESOURCE ECONOMICS 410


ENVIRONMENTAL AND RESOURCE ECONOMICS
SPRING 2020
In-Class Exercise

Solving for Cost Effective Pollution Abatement

Situation: Assume there are two firms in the industry and they discharge a uniformly mixed,
fund pollutant. Their abatement cost functions are shown below.

FIRM A Total Cost = 7000 + 800*qa + 50*qa2


Marginal Cost = _________________

FIRM B Total Cost = 2000 + 500*qb + 100*qb2


Marginal Cost = _________________

Qi = number of units of pollution abated by firm i

Assume a total of 80 units of pollution are emitted initially by this two firm industry and that the
desired level of abatement 75% (i.e. abate 60 out of the 80 units).

1. Plot the marginal cost functions on a graph. What firm do you expect will do more
abatement when trying to minimize total costs of both firms?

1
1/30/20

2. Compute the marginal and total costs for each firm when abatement is allocated evenly
among the two firms, as might be done under command and control (CAC) regulation.
This is 30 units of abatement for each firm.

3. Compute how pollution abatement should be allocated among the two firms to minimize
abatement costs across both firms.

4. What are the total and marginal costs for each firm at this cost effective allocation?

5. Compare the total costs for both firms when abatement is allocated evenly among the two
firms versus the cost effective allocation. What is the percentage reduction in total costs
achieved by the cost effective allocation? What is the ratio of Command and Control
(CAC) total cost to the cost effective allocation total cost?

You might also like