Los Angeles County has the worst urban air quality across all major metropolitan areas in the United States. Automobile emissions contribute significantly to this problem. Assume the California Air Resources Board is considering whether to set a uniform emission standard or a regionally-based emission standard, where one standard is set for Los Angeles County and another for the rest of the state.
Marginal social benefits (MSB) and marginal social costs (MSC) for the two regions have been estimated as follows:
MSB_abatementin LA County = 500 - 0.75A
MSB_abatementin the rest of California = 150 - 0.25A
MSC_abatement in all of California = 0.5A,
where A is the level of abatement of automobile emissions, and MSB and MSC are in millions of dollars.
a. Graph the MSB and MSC functions on the same diagram. Show the regionally-based set of standards (A_LA and A_REMAINDER) that should be recommended to achieve allocative efficiency in each region. Find the numerical value of each standard.
b. A uniform abatement standard (A_ST) is also being considered across the State of California of 300 units. Use the criterion of allocative efficiency to support or refute this alternative.

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The Answer of Los Angeles County has the worst urban air quality across all major metropolitan areas in the United States. Automobile emissions contribute significantly to this problem. Assume the California Air Resources Board is considering whether to set a uniform emission standard or a regionally-based emission standard, where one standard is set for Los Angeles County and another for the rest of the state. Marginal social benefits (MSB) and marginal social costs (MSC) for the two regions have been estimated as follows: MSB_abatementin LA County = 500 - 0.75A MSB_abatementin the rest of California = 150 - 0.25A MSC_abatement in all of California = 0.5A, where A is the level of abatement of automobile emissions, and MSB and MSC are in millions of dollars. a. Graph the MSB and MSC functions on the same diagram. Show the regionally-based set of standards (A_LA and A_REMAINDER) that should be recommended to achieve allocative efficiency in each region. Find the numerical value of each standard. b. A uniform abatement standard (A_ST) is also being considered across the State of California of 300 units. Use the criterion of allocative efficiency to support or refute this alternative.

Los Angeles County Has the Worst Urban Air Quality Across