Business, 24.06.2019 10:00 lberman2005p77lfi

Suppose that pollution in a neighborhood comes from two factories, with marginal benefit curves given by mb1 = 12 – p1 and mb2 = 8 – p2. the level of pollution in the neighborhood is given by p = p1 + p2. the government wants to limit pollution by instituting a pollution-rights market. the government’s desired level of p is 10, so it prints 10 pollution rights and offers them for sale to the firms. a) find the equilibrium selling price of a pollution right, as well as the allocation of rights (and hence pollution levels) across the two factories. b) repeat part (a) for the case where the government’s desired level of pollution equals 14. c) comment on the usefulness of a pollution rights market in achieving efficient levels of pollution abatement.

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Suppose that pollution in a neighborhood comes from two factories, with marginal benefit curves give...

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