The marginal CO2 abatement costs for two companies are modeled as 16 + 2 A1 and 10+2 A2. The total cost functions are modeled as 16A1 + A12 10A2.
Using the Uniform Standard: If the government requires the sum of 50 units of abatement, what would the marginal cost and total cost be for each company? And for the economy?
How would you reallocate the abatement requirements to guarantee cost effectiveness for the two companies? How would marginal and total cost change?
Which of the two above answers do you support? Why?
Would you use the same arguments to reallocate pollution credits for different States? How about different countries? Explain.
Why is there an expected difference between a competitive solution and a cost efficient solution to such a negative environmental externality?