#231 What quantity of emissions do firms produce

What quantity of emissions do firms produce - Economics

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Consider two firms (i.e., firms 1 & 2) with heterogeneous marginal abatement cost functions:

What quantity of emissions do firms produce in the absence of government intervention? What are the total external damages? What are the total abatement costs?

Derive the aggregate marginal abatement cost function (Hint: This will be a kinked function. From the MAC functions you should be able to determine the kink point. Then invert the MAC functions to solve for the emissions functions. Finally, sum up emissions conditional on different MAC levels).

What is the socially efficient level of emissions? How much does each firm emit at the socially efficient level? How much does each firm abate relative to the market equilibrium?

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