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abatement levels

5. Assume that two power plants, Firm 1 and Firm 2 release sulfur dioxide (SO2) in a small urban community that exceeds the emissions standard. To meet the standard, 30 units of SO2 must be abated in total. The two firms face the following abatement costs:
MAC1=16+0.5A1
MAC2=10+2.5A2 where costs are measured in thousands of dollars.

a. Prove that a uniform standard will not meet the cost effectiveness criterion.
b. Determine how the abatement levels should be reallocated across the two firms to minimize costs.

Solution Preview

a. Prove that a uniform standard will not meet the cost effectiveness criterion.
A uniform standard will make the two firms divide the 30 units equally, and each firm has 15 units.
Then ...

Solution Summary

This job discusses cost effectiveness criterion.

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