Problem: It is well documented that the carbon monoxide (CO) emissions from combustible engines increase in colder climates. This implies that the associated damages are expected to be less severe in summer months than in winter. Nonetheless, air quality control authorities use a standard for CO that is uniform throughout the year with no allowance for seasonal effects. Use this information and the following model to answer the questions:
MSB of CO abatement in winter=350-0.5A
MSB of CO abatement in summer+ 140-0.2A
MSC of CO abatement= 0.2A where A is the level of CO abatement.
Q1. Graph the MSB and MSC functions on the same diagram
Q2. Assume the government sets a uniform standard for winter and summer at A=500. Support or refute this policy based on the criterion of a allocative efficiency, using your model to explain your response.
Q3. If you were in charge of setting policy for CO emissions, what action would you recommend to ensure an allocatively efficient outcome across the two seasons.