a. Suppose the regulatory agency requires that the two firms
each abate units of pollution. What is each firm’s
marginal abatement cost at?
b. Could the total cost of this amount of pollution
abatement be reduced? Explain how.
c. Now suppose the regulatory agency instead imposes an
emissions tax of $40 per unit of emissions. Explain why
this tax can be thought of as each firm’s “marginal benefit
of abatement.”
Q 3
Q 3