1. MAC = 12 - 3E and MD = - 6 + E. What is ESE and what is TSC(ESE).
a) 0, 24
b) 6, 24
c) 6, 0
d) 4, 0
e) 6, 48
2. Suppose each unit of the good produces one unit of emissions. MPC = 3Q and MWTP = 40 - Q. MEC = Q measures the negative external cost of the good in the Demand/Supply model, so MD = E measure the negative external costs in the MAC/MD model . Assume the MAC and MD curves are linear. Find the TSC(ESE).
a) 20
b) 30
c) 40
d) 50
e) 60
3. Suppose the MD = E and MAC = 15 - E/2 but after innovation it is possible to operate with MACN = 12 - E. There is currently no regulation in the industry. Find the firm's incentive to innovate. Suppose the regulation is such that firm's must abate to ESE. What is the additional incentive to innovate now?
a) 42
b) 52
c) 62
d) 72
e) 82
4. MAC = 24 - 2E and MD = E. 'If' the firm innovates, it will be able to operate on MAC = 12 - E. The current regulatory environment is such that regulations automatically update forcing firms to operate at whatever is the current socially efficient level of emissions. The govt. is considering switching to a non-updating regulatory system. The govt.'s mandate is to minimize TSC.
What is the incentive for the govt. to switch to a regulatory system where regulated emission levels do not automatically update.
a) 48
b) 40
c) 16
d) 18
e) 8
5. MACA = 400 - E, MACB = 300 - E, and MACC = 200 - E. MD = E/2. The regulator tells the firms to emit no more than 360 units of emissions, and to do so efficiently across firms. Find the TSCMIN (ETotal = 360). Find the TSC (EA = EB = EC). What's the difference between them.
a) 10,000
b) 8,000
c) 30,000
d) 21,000
e) None of the above
6. The gross benefit of an abatement project is measure by the decrease in TD, whereas the gross cost of an abatement project is measured by the increase in TAC associated with the project. Find the Benefit/Cost ratio of the the following project at ESE and at E* = ESE + 7 MAC= 21 - E and MD = 2E. The B/C ratio at E* is ___ times greater than the B/C ratio
at ESE.
a) 10
b) 6
c) 4
d) 2.5
e) It's not greater, its smaller.