If the marginal abatement cost equation for an industry is given by: MAC = 600 - 0.5E and the marginal damage cost equation for the same industry is MDC = 2.5E,what is the socially efficient equilibrium standard? What is the total abatement cost to achieve this standard?

Question

Quizplus · Accepted Answer

The Answer is The socially efficient equilibrium standard is set equal to E^* which corresponds to the level of emissions that equates MAC to MDC:
600 - 0.5E^* = 2.5E^*
E^* = 600/3 = 200
The socially efficient equilibrium emission standard is equal to 200 units of emissions.The total abatement cost to achieve this standard is equal to the area under the MAC equation from emissions of 200 to the level of unregulated emissions,E₀,which can be found by setting MAC = 0:
0 = 600 - 0.5E₀E₀ = 600/0.5 = 1,200
So TAC = ½(1,200 - 200)500 = $250,000.

If the Marginal Abatement Cost Equation for an Industry Is