Suppose the marginal costs of mitigating Greenhouse Gas emissions for two coal producers are given as follows:
Producer 1: MC1 = 10Q1
Producer 2: MC2 = 40Q2
where MC1 and MC2 are the marginal control costs and Q1and Q2 are the volumes of emissions reduced by Producers 1 and 2 respectively. With no controls at all, each firm emits 50 units totalling 100 units.
(a) Compute the cost-effective allocation of control responsibility if a total reduction of 50 emission units is required.
(b) If the Government wants to charge an emission tax, what per unit tax should they impose?
(c) How much total revenue would the Government collect from the emission tax of section (b)?