Instead of a uniform standard, suppose each firm faces a volume-based, marginal effluent fee (MEF) of $90. How much will each firm abate?
Among the identified point sources contributing to the pollution of Puget Sound are Dow Chemical (D) and Chevron (C). Each firm's cost functions are shown below.
MACD = 2.5AD MACC = 3.75AC
TACD = 1.25AD2 TACC = 1.875AC2
To meet the effluent limits under the Clean Water Act, each firm has an NPDES permit to release some fixed amount of effluents, so each must abate 30 units.
If each firm faces an MEF of $90, each will abate up to the point where their respective MAC equals the MEF, as follows:
For Dow: For Chevron:
MACD = MEF MACC = MEF
2.5AD = $90 3.75AC = $90
AD = 36 AC = 24
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