Assume that two power plants, Firm 1 and Firm 2, release arsenic in a small urban community that exceeds the emissions standard. To meet the standard, 40 units of SO2 must be abated in total. The two firms face the following abatement costs:
MAC1 = 0.7A1
MAC2 = 3.3A2
where costs are measured in thousands of dollars.
a) In abating equally (Uniform Standards) which firm would have a larger marginal abatement cost, and point which company is less efficient (show this mathematically and show your work)
b) If both companies want to be cost effective (cost efficient criteria), in which MAC1 = MAC2, how are abatement levels be reallocated?, (Math Required, show your work )
c) Under cost effective criteria which company has to abate more, why, and what are the possible complications, explain?
d) Under cost effective criteria what are the total abatement cost for each plant? (Math Required)