Consider two firms whose marginal costs of production are, Ask an Expert

Economics

Consider two firms whose marginal costs of production are MC(Q1) = 10Q1; MC(Q2) = 5Q2: Suppose each unit of output produced, Q, results in one unit of emissions, E. Suppose the two firms sell their output in a perfectly competitive market, with perfectly elastic demand at a price of $90. Furthermore, suppose there is a constant external cost of emissions of $10.

Now suppose the regular decides to implement a cap and trade system to attain the socially optimal level of emissions via the Coase theorem. Firm 2 has more political clout, however, so the regulator distributes all permits to firm 2.

(a) How many permits should the regulator allocate to firm 2?

(b) Now suppose firm 2 sells permits to firm 1 such that they get to the socially optimal allocation of emissions across the two rms. How many permits would firm 2 sell to firm 1?

(d) What is the maximum price firm 1 would be willing to pay for these permits?

View complete question

Business Economics, Economics

Category:- Business Economics
Reference No.:- M91703346

Have any Question?Write your Review or question?

Related Questions in Business Economics

What are the typical types of risk faced by a firm explain

What are the typical types of risk faced by a firm? Explain each type of risk in details.

Research scenarionbspa community psychologist is interested

Research Scenario: A community psychologist is interested in whether people's self-reported degree of religious belief predicts their self-reported feelings of well-being. She administers two questionnaires to 17 indivi ...

Briefly explain what separations are how do they effect the

Briefly explain what separations are, how do they effect the average duration of unemployment?

A certain device is used to determine the sex of an unborn

A certain device is used to determine the sex of an unborn baby, but the device is not very reliable. If the fetus is truly a boy, the device says BOY with probability 0:8 (but, mistakenly, GIRL with probability 0:2). If ...

Suppose for the 3rd year in a row the harvest of wheat in

Suppose for the 3rd year in a row, the harvest of wheat in the US continues to decline. Imports are being used to make up the shortages in the US. In addition the US government decides to establish a price ceiling to hel ...

Coach steroid likes his players to be big fast and obedient

Coach Steroid likes his players to be big, fast, and obedient. If player A is better than player B in two of these three characteristics, Steroid will prefer A to B . Three players try out for quarterback. Wilbur ...

How do changes in income affect consumption and savingwhat

How do changes in income affect consumption (and saving)? What are factors other than income that can affect consumption?

Suppose that the forward rate f at 6 months between and

Suppose that the forward rate F at 6 months between $ and Euro is Euro = $1.2 The interest rate at six months in the Euro Area and in the USA is i Euro =3% i USA=2% What is the spot exchange rate? [x] a.Euro = $1.21 b.Eu ...

A researcher conducts a well-designed study to compare a

A researcher conducts a well-designed study to compare a sample mean to a known population mean and uses alpha=.05, two-tailed. She finds a z-test of 1.98, p-value=.048. What should she conclude? a. The 95% confidence in ...

Three friends tom jerry and mary were having coffee in the

Three friends, Tom, Jerry and Mary were having coffee in the GOSSIP CAFÉ and were discussing their job prospects. Tom told his mates that he has just resigned from his current job because he worked long hours and did not ...

4,153,160 Questions Asked
13,132 Experts
2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Recent Questions

Ask Business Economics Expert