Suppose the Regulator Wished to Reduce Total Industry Emissions by 25

question 1

Essay

Suppose the regulator wished to reduce total industry emissions by 25% by implementing cost-effective,individual standards.What is the level of emissions and abatement at each source under cost-effective,individual standards? What is the total compliance cost for the industry under the individual standards?B.When source A emits 320 units,MAC_A = 1,200 - 3(320)= $240 and when source B emits 280 units,MAC_B = 800 - 2(280)= $240.The total abatement cost for each source will be the area under the MAC curve from the current level of emissions to emissions of 400 (the unregulated level of emissions).
TAC_A = ½(80 * 240)= $9,600
TAC_B = ½(120 * 240)= $14,400
The total compliance cost of the uniform standard for the industry is equal to the sum of the total abatement costs at each source:
TCC = 9,600 + 14,400 = $24,000
We know this is cost effective because MAC_A = MAC_B.

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Definitions:

Net Income

The profit a company retains after all financial obligations, like costs and taxes, are subtracted from its total income.

Cost Method

An accounting method used to value inventory or investments at their original purchase cost.

Equity Method

An accounting technique used by a company to record its investment in another company.

Unrealized Gain/Loss

A profit or loss that results from holding an investment that has not yet been sold, and thus, the gain or loss is not reflected in the financial statements.