If the state uses a uniform standard, show that such a ruling would not be cost-effective. Which firm should be abating more, and which firm should be abating less?
Consider the environmental problem created by two paint companies that release chromium wastes into a nearby stream. The state authorities set a standard for the waterway that requires a combined abatement level (A) for chromium of 15 units. Suppose that the two firms, firm 1 and firm 2, face the following marginal abatement cost equations: MAC1 = 3.2A1 and MAC2 = 0.8A2, where costs are measured in thousands of dollars.
Based on a uniform standard, each firm would abate half of the aggregate standard, or 7.5 units. Therefore, MAC1 = 3.2(7.5) = $ 24 thousand and MAC2 = 0.8(7.5) = $6 thousand. Since the MACs are unequal, cost-effectiveness is not achieved. Based on the relative dollar values, Firm 1 should abate less, and Firm 2 should abate more, since Firm 2 clearly can clean up more cheaply than Firm 1 at the margin.
You might also like to view...
When actual output equals potential output there is ________ output gap and the rate of inflation will tend to ________.
A. an expansionary; increase B. no; remain the same C. an expansionary; decrease D. a recessionary; increase
At its most basic level, economic growth depends on
A) creating the right incentives. B) saving by the government. C) government leadershi
A country will have a balance-of-payments surplus when its exchange rate:
A. is overvalued. B. equals the market equilibrium value. C. is flexible. D. is undervalued.
In Figure 33.1, how many people would lose their jobs as a result of the minimum wage? 
A. L* B. LS-Lmin C. L*-Lmin D. LS - L*