Suppose that two firms, X and Y, face the following abatement costs:
MAC X = 1.2A X , MAC Y = 0.3A Y
TAC X = 0.6A X 2 TAC Y = 0.15A Y 2
Further assume that the combined abatement standard is 40 units for both firms. Use this information for any or all of Questions .
-According to this model, if the government uses a uniform standard
A) firm Y would face a marginal abatement cost that is higher than that for firm Y
B) that standard would achieve a cost-effective solution
C) firm Y should do more of the abating and firm X should do less to move closer to a cost-effective solution
D) firm X's marginal abatement cost would be $48, and firm Y's marginal abatement cost would be $12

Question

Suppose that two firms, X and Y, face the following abatement costs:
MAC X = 1.2A X , MAC Y = 0.3A Y 
TAC X = 0.6A X 2 TAC Y = 0.15A Y 2 
Further assume that the combined abatement standard is 40 units for both firms. Use this information for any or all of Questions .
-According to this model, if the government uses a uniform standard
A) firm Y would face a marginal abatement cost that is higher than that for firm Y
B) that standard would achieve a cost-effective solution
C) firm Y should do more of the abating and firm X should do less to move closer to a cost-effective solution
D) firm X's marginal abatement cost would be $48, and firm Y's marginal abatement cost would be $12

Quizplus · Accepted Answer

DExplanation:C) Given the marginal abatement costs (MAC) for firms X and Y (1.2A for X and 0.3A for Y), it's clear that firm Y has a lower cost of abatement per unit than firm X. Therefore, for a cost-effective solution where the total abatement cost is minimized, firm Y should undertake more of the abatement activity than firm X.D) The marginal abatement cost (MAC) is the cost of abating an additional unit of pollution. Given the MAC formulas (1.2A for X and 0.3A for Y), if the combined abatement standard is 40 units, to find the cost-effective allocation, we equate the MACs and solve for A. However, without solving for A directly, the statement in D seems to provide specific MAC values at some allocation point. The correct approach involves equating MACs to find the optimal allocation, but without additional information or calculations provided in the question, we cannot directly verify the MAC values of $48 for X and $12 for Y. This choice seems to imply a specific scenario under the model's framework, suggesting an understanding that at some allocation, these could be the MACs, aligning with the principle that firm Y, with a lower MAC, should abate more. However, without the explicit calculation or allocation details, this explanation assumes the values provided ($48 and $12) are derived from an application of the model's principles, indicating a scenario where firm Y is indeed abating more efficiently than firm X.

Suppose That Two Firms, X and Y, Face the Following