Explain why the current abatement levels for the two sources do not achieve cost effectiveness.
Suppose that there are only two stationary sources in a given air quality region. The first source has been in existence for several years, while the second source is new. The following functions represent marginal abatement costs (MAC) for each polluting source:
MACEX = 10.0 + 0.7A EX, MACN = 9.2 + 0.5A N,
whereAEX is the percentage abatement level for the existing source, and AN is the percentage abatement level for the new source.
Assume that the aggregate abatement standard (i.e., for the region as a whole) is set at 40 percent and that the two firms’ current abatement levels areAEX = 10 and AN = 30.
In order for the individual abatement levels to be cost effective, the MACvalues must be equal across firms. In this case, if AEX = 10 and AN = 30, then MACEX and MACNare not equal. The supporting calculations are as follows:
MACEX = 10.0 + 0.7(10) = 17 MACN = 9.2 + 0.5(30) = 24.2
Given that MACEX ? MACN, the current allocation of the aggregate abatement standard of 40 percent is not set at the cost-effective level.
You might also like to view...
Assume a small nation has the following statistics: its consumption expenditure is $15 million, investment is $2 million, government purchases of goods and services is $1 million, exports of goods and services to foreigners is $1 million, and imports
of goods and services from foreigners is $1.5 million. Calculate this nation's GDP.
What are the five major channels, which developing countries use to finance their external deficit?
What will be an ideal response?