Problem Set 2

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a) Graph the marginal abatement benefit (MAB) and marginal abatement cost (MAC) curves. Provide functions for the curves. MED = 52 1 5
Revenue = tax * quantity emitted R = $93 1 /pound * 16 1/3 pounds = $1,524.44 3 This is the pink-shaded region on the graph (the polluters pay the tax on the quantity that they don’t abate) d) Assuming the same tax is imposed as in part (b), how much is spent by the industry on emissions abatement? Show this area shaded on the graph in part (a). Abatement Cost = ½ (18 2/3)(93 1/3) = $871.11 This is the blue-shaded region on the graph 13
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Problem Set 2

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