Bear with me - this is a long question. But I did do few of the parts, but I'm posting it because it seems necessary that you know what I previously did. Sorry for the "length"! Answers are given in blockquotes.
MAC = Marginal Abatement Cost MDF = Marginal Damage Function
1) A policy maker is faced with the following MDF from the emissions of nitrous oxide: MDF = 1000 E (where E = tons of emissions). Research leads the policy maker to perceive that the industry MAC function is MAC = 130,000 – 1000E.
a) What will be the perceived economically efficient target of emissions?
Efficient target would be the situation where MDF = MAC | 1000E = 130,000 – 1000E
E = 65
b) What is the emissions fee that generates that target?
Emission fee = MDF = 1,000E = 1,000 × 65 = 65,000
c) What is the aggregate level of permits that generates that target?
Aggregate level of permit = MDF × E = 65,000 × 65 = 4,225,000
d) If there is a thick market for permits, what will be the market price of a permit?
e)The actual MAC is MAC = 150,000 – 500E. Find or show the cost of an error from using an emission fee.
f) The actual MAC is MAC = 150,000 – 500E. Find or show the cost of an error from using cap and trade.
Could someone help me figure out on how to do part d, e and f?
