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 .
-The cost savings associated with the cost-effective solution relative to a uniform standard equals
A) $300
B) $108
C) $10.8
D) $9.60

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 .
-The cost savings associated with the cost-effective solution relative to a uniform standard equals
A) $300
B) $108
C) $10.8
D) $9.60

Quizplus · Accepted Answer

To find the cost-effective solution, we need to equate the marginal costs of both firms: MACX = MACY = MC 1.2A_X = 0.3A_Y 4X = Y Substituting Y into the total abatement cost equation, we get: TC = 0.6A_X² + 0.15A_(4X)² TC = (5.4A_X)² Substituting the combined abatement standard of 40 units, we get: TC = (5.4A)(40) TC = 216A Now, if we use a uniform standard of 20 units for both firms, the total abatement cost would be: TC = 0.6A_{(20)² + 0.15A_{(20)²

TC = (18A)²

TC = 720

The cost savings associated with the cost-effective solution relative to a uniform standard would be:

720 - 216A = 108

Therefore, the cost savings associated with the cost-effective solution relative to a uniform standard is $108.}}

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