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<strong>Problem</strong> 8<br />
You’re a policy analyst for the Pie-in-the-Sky Think Tank in Washington. A prominent<br />
politician has asked you to determine what the efficient level of emissions would be for the<br />
electricity industry in the United States to cease its negative impact on climate change.<br />
Through some brilliant analysis, you’ve determined that the Marginal Emissions Damages<br />
from electricity CO2 emissions are:<br />
MED = 10+0.0075E<br />
and the marginal emission benefits to the industry are estimated to be:<br />
MEB = 125 – 0.05E<br />
where E = Million tons of CO2 emissions per year, and MEB/MED are dollars per ton.<br />
a) What is the efficient level of emissions, and the MED at that level?<br />
The efficient level of emissions is the quantity at which the marginal emissions damages<br />
equals the marginal emissions benefits<br />
MED = MEB<br />
10+0.0075E = 125 – 0.05E => E* = 2,000x10 6 tons CO2 per year<br />
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