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 .
-Based on the model given, the cost-effective solution would arise if
A) each firm abates 20 units of pollution
B) firm X abates 8 units, and firm Y abates 32 units
C) firm Y does all the abating because its MAC is lower
D) firm X abates 24 units, and firm Y abates 16 units
E) none of the above

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 .
-Based on the model given, the cost-effective solution would arise if
A) each firm abates 20 units of pollution
B) firm X abates 8 units, and firm Y abates 32 units
C) firm Y does all the abating because its MAC is lower
D) firm X abates 24 units, and firm Y abates 16 units
E) none of the above

Quizplus · Accepted Answer

The cost-effective solution for pollution abatement occurs when the marginal abatement costs (MAC) between firms are equalized. Given the MAC functions for firms X and Y, the solution that minimizes total abatement costs involves allocating more abatement to the firm with lower MAC, which is firm Y in this case. The specific distribution (firm X abating 8 units and firm Y abating 32 units) is determined by the need to meet the combined abatement standard of 40 units while minimizing total costs, taking into account the differing MACs.

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