Refer to the Figure above. The firm is facing an emissions charge of t and an abatement cost curve of MAC₁. If the firm is able to lower its abatement cost curve to MAC₂_,it will A) emit at level e₁ and save (d+e). B) emit at level e₁ and save (d). C) emit at level e₂ and save (c+d). D) emit at level e₁ and save (d+e)

Question

Quizplus · Accepted Answer

By shifting the abatement cost curve to MACS1U1B12S1U1B0S1U1B1, the firm will emit at level eS1U1B12S1U1B0, which is lower than eS1U1B11S1U1B0. As a result, it will have to pay a lower emissions charge of c. Additionally, by shifting the abatement cost curve, the firm will save the cost of abatement equal to d. Therefore, the firm will save (c+d) in total by shifting the abatement cost curve.

Refer to the Figure Above