Assume that there are two firms, each emitting 20 units of pollutants into the environment, for a total of 40 units in their region. The government sets an aggregate abatement standard (A_ST) of 20 units. The polluters' cost functions are as follows, where the dollar values are in thousands:
Polluter 1: TAC₁ = 10 + 0.75(A₁)²,
MAC₁ = 1.5A₁

Polluter 2: TAC₂ = 5 + 0.5(A₂)², ,
MAC₂ = A₂_.

a. What information does the government need to support an assertion that the 20-unit abatement standard is allocatively efficient?
b. Suppose that the government allocates the abatement responsibility uniformly, requiring each polluter to abate 10 units of pollution. Quantitatively assess the cost implications.
c. Now, assume that the government institutes an emission fee of $16 thousand per unit of pollution. How many units of pollution would each polluter abate? Is the $16 thousand fee a cost-effective strategy for meeting the standard? Explain.
d. If instead the government used a pollution permit system, what permit price would achieve a cost-effective allocation of abatement? Compare the costs of this allocation to the costs of using the uniform standard described in part (b).

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The Answer of Assume that there are two firms, each emitting 20 units of pollutants into the environment, for a total of 40 units in their region. The government sets an aggregate abatement standard (A_ST) of 20 units. The polluters' cost functions are as follows, where the dollar values are in thousands: Polluter 1: TAC₁ = 10 + 0.75(A₁)², MAC₁ = 1.5A₁ Polluter 2: TAC₂ = 5 + 0.5(A₂)², , MAC₂ = A₂_. a. What information does the government need to support an assertion that the 20-unit abatement standard is allocatively efficient? b. Suppose that the government allocates the abatement responsibility uniformly, requiring each polluter to abate 10 units of pollution. Quantitatively assess the cost implications. c. Now, assume that the government institutes an emission fee of $16 thousand per unit of pollution. How many units of pollution would each polluter abate? Is the $16 thousand fee a cost-effective strategy for meeting the standard? Explain. d. If instead the government used a pollution permit system, what permit price would achieve a cost-effective allocation of abatement? Compare the costs of this allocation to the costs of using the uniform standard described in part (b).

Assume That There Are Two Firms, Each Emitting 20 Units