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equi-marginal principle of optimality

A. Under a strict command and control framework, supple abatement standards are se equally across polluters. Assume the total abatement target is 30 units. Show the cost implications using three graphs, each of a different polluter with a unique MAC curve drawn to depict a low cost abater, a moderate cost abater and a high cost abater. On each graph, identify the abatement level corresponding to a uniform standards approach and show the level of MAC at that point and the area corresponding to TAC.

b. Now refer directly to your model and summarize what would happen qualitatively to the abatement levels of each firm if the equimarginal principle of optimality were used. Explain intuitively why this method would be cost-effective.

Solution Preview

a. Using the uniform standard, each polluter would be forced to abate 10 units. The graphs should illustrate that implementation of this approach does not achieve equal MACS across the three polluters. (see the graph) At10 units of A, MAC of the three different polluters are not equal.

On each graph, TAC is represented as ...

Solution Summary

The equi-marginal principle of optimality is examined.