Draw a graph of pollution abatement by two emitters, one with a steeper marginal

Question

Draw a graph of pollution abatement by two emitters, one with a steeper marginal abatement cost curve than the other. First, show a policy requiring identical, fixed amounts of required abate ment and identify the marginal cost to each emitter of complying with that policy. Second, implement a policy whereby an emitter is allowed to choose the amount of emissions released but must pay a tax on emissions beyond a specified amount. Third, with re ference to the graph, discuss the efficiency properties of the two policies.   

Explanation / Answer

The graph of marginal abatement cost of the firm

The graph of efficient tax on emission

Now efficiency properties of the two policies are:

Firstly, they can reduce the output of there product.

Secondly a firm may change its production process.

Finally, the power station can install a filter on the end of its Chimney to remove the SO2 from the waste gas stream.

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