Answer all the questions in Problem A and Problem B. Include all your calculations in the solutions.
Problem A:
The coal energy company, Power, for Healthy Earth, releases carbon emissions into the atmosphere of the City of Atlanta. Power for Healthy Earth however does not do anything to bear the external costs associated with the health and ecological problems it creates for residents of the City of Atlanta. In other words, Power for Healthy Earth believes that residents of the City of Atlanta do not know about the problems and then leaves residents to pay for the health and ecological problems they (residents) may suffer from carbon emissions from the company (Power far Healthy Earth).
Suppose that you are a concerned resident working with the following marginal benefits and costs for coal energy, where Q is thousands of pounds of carbon emissions and P is price per pound:
MPR (Marginal Private Benefit) = 660 - 0.5Q (like a Demand Equation).
MPC (Marginal Private Cost) — 20 + 0.3Q (like a Supply Equation).
MEB (Marginal External Benefit) = 0 (an external benefit is a positive externality).
MEC (Marginal External Cost) = 0.2Q (an external cost is a negative externality).
With your understanding of the discussion on Market Failure (Chapter: Modeling Market Failure in Callan and Thomas),
i) Find the competitive equilibrium, Qe and Pe.
ii) Find the efficient equilibrium, Qe and Pe.
iii) Show (a) the competitive equilibrium and (b) the efficient equilibrium in one single graph properly labeled.
Suppose Power for Health Lank owned the rights to pollute the atmosphere of the City of Atlanta, and it is negotiating with concerned residents willing to pay the company (Power for Maltby Earth) to produce less coal energy.
i. For the 850rn unit of coal energy. determine the range within which a payment would be acceptable to Power for Healthy Earth and the concerned residents. Show the following in the graph for I(iii) above:
a. the 850th unit
b. the unit price Power for Healthy Earth would take
c. the unit price the concern residents would pay
ii) In 200-300 words. clearly explain the price range associated the 850th uint of coal.
iii) In 400-500 total words reflecting your understanding in Ostrom's book.
a) Creatively explain coal energy as a toll good and as a public good
b) Skillfully explain pollution from coal energy as a public good, and
c) Critically discuss how pollution from coal energy can be reduced to a manageable level without government intervention.
Problem B:
Assume that two power plants. Firm I and Firm 2, release sulfur dioxide (SO2) in Atlanta that exceeds the emissions standard. To meet the standard, 60 units of SO2 must be abated in total. The two firma face the following abatement costs:
MAC1 (Marginal Abatement Cost for Firm 1) = 16 + 0.5 A1
MAC2 (Marginal Abatement Cost for Finn 2) = 10 + 2.5 A2
The costs are measured in thousands of dollars.
With your knowledge of the class discussion on Government Approach to Market Failure (Chapter in Callan and Thomas on Conventional Solutions to Environmental Problems: The Command-and-Control Approach in the oh Edition),
1.
(a) Prove that a uniform standard will not meet the cost-effectiveness criterion.
(b) Show your results in a graph that is properly labelled.
(c) In 200-300 words, draw a conclusion on why the uniform standard will not meet the cost-effectiveness criterion.
2.
(a) Determine how the abatement levels should be reallocated across the two firms to minimize costs.
(b) Show your results in a separate graph that is properly labeled.
(c) In 200-300 words, draw a conclusion on how the abatement levels should be reallocated across the two firms to minimize costs.