Assume That There Are Two Firms, Each Emitting 20 Units

question 21

Essay

Assume that there are two firms, each emitting 20 units of pollutants into the environment, for a total of 40 units in their region. The government sets an aggregate abatement standard (A_ST) of 20 units. The polluters' cost functions are as follows, where the dollar values are in thousands:
Polluter 1: TAC₁ = 10 + 0.75(A₁)²,
MAC₁ = 1.5A₁

Polluter 2: TAC₂ = 5 + 0.5(A₂)², ,
MAC₂ = A_2.

a. What information does the government need to support an assertion that the 20-unit abatement standard is allocatively efficient?
b. Suppose that the government allocates the abatement responsibility uniformly, requiring each polluter to abate 10 units of pollution. Quantitatively assess the cost implications.
c. Now, assume that the government institutes an emission fee of $16 thousand per unit of pollution. How many units of pollution would each polluter abate? Is the $16 thousand fee a cost-effective strategy for meeting the standard? Explain.
d. If instead the government used a pollution permit system, what permit price would achieve a cost-effective allocation of abatement? Compare the costs of this allocation to the costs of using the uniform standard described in part (b).

Analyze financial implications of real estate investment decisions, including conversion for personal or professional use.

Determine the relevance of various costs and revenues in project analysis and financial decision-making.

Calculate the net working capital requirements for new projects.

Apply the tax shield approach to calculate operating cash flow.

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Definitions:

Global Culture

The shared experiences, norms, values, and practices that transcend local cultures, often facilitated by economic globalization and rapid communication technologies.

Cultural Relativism

The principle that an individual's beliefs, values, and practices should be understood based on that individual's own culture, rather than judged against the criteria of another.

Cultural Values

The core principles and ideals upon which an entire community exists, influencing its members' behaviors and beliefs.

Counterculture

A way of life and set of attitudes opposed to or at variance with the prevailing social norm.