Suppose that two firms, X and Y, face the following abatement costs: MACX = 1.2A

Suppose that two firms, X and Y, face the following abatement costs: MACX = 1.2AX, MACY = 0.3AY
TACX = 0.6AX2 TACY = 0.15AY2
Further assume that the combined abatement standard is 40 units for both firms. Use
this information for any or all of Questions 42 through 45.
42. Based on this model, if the government uses a uniform standard
a.           the total abatement cost for firm X is $24
b.           the total abatement cost for firm Y is $12
c.           the combined total abatement cost for both firms is $1,200
d.           the combined total abatement cost for both firms is $300
43. According to this model, if the government uses a uniform standard
a.           firm Y would face a marginal abatement cost that is higher than that for firm Y
b.           that standard would achieve a cost-effective solution
c.           firm Y should do more of the abating and firm X should do less to move closer to a cost-effective solution
d.           firm X’s marginal abatement cost would be $48, and firm Y’s marginal abatement cost would be $12
44. Based on the model given, the cost-effective solution would arise if
a.           each firm abates 20 units of pollution
b.           firm X abates 8 units, and firm Y abates 32 units
c.           firm Y does all the abating because its MAC is lower
d.           firm X abates 24 units, and firm Y abates 16 units
e.           none of the above
45. The cost savings associated with the cost-effective solution relative to a uniform standard equals
a. $300 b. $108
c. $10.8 d. $9.60 

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